Nikkei 225 Enters Correction, Falls 10% From Dec. 30 High

Japanese shares fell, with the Nikkei 225 Stock Average entering a correction, as investors weighed corporate earnings and slowing Chinese manufacturing growth increased concern the global economic recovery is faltering.

Hokkaido Electric Power Co. led a decline by utilities after forecasting a 77 billion yen ($754 million) net loss. Daiwa Securities Group Inc., Japan’s second-largest brokerage, lost 4.9 percent even after its third-quarter profit tripled. NGK Insulators Ltd. jumped 12 percent on raising its operating-income outlook by 24 percent.

The Nikkei 225 slid 2 percent today to 14,619.13, extending its slide from a six-year high reached Dec. 30 to 10 percent and entering a correction. The Topix index sank 2 percent to 1,196.32, its lowest close since Nov. 11. The Standard & Poor’s 500 Index capped a third week of losses Jan. 31 after the Federal Reserve cut stimulus even amid a rout in emerging-market currencies. An official gauge showed on Feb. 1 that growth in Chinese factory output slowed to the least in six months.

“The risk-off mood is pretty strong,” said Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset Management Co., which oversees about 600 billion yen. “Individuals and hedge funds are wanting to take money off the table. Emerging-market currencies are still facing problems that started with the Fed’s tapering and falling into a negative cycle. The positivity we saw at the start of the year is being corrected.”

China PMI

China’s Purchasing Managers’ Index was at 50.5, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Feb. 1 in Beijing. That matched the median estimate of analysts surveyed by Bloomberg News and compared with December’s 51 reading. Numbers above 50 signal expansion.

Futures on the S&P 500 slid 0.1 percent today. The measure and the Dow Jones Industrial Average both posted the worst month in almost two years, with the S&P 500 finishing January down 3.6 percent while the Dow dropped 5.3 percent.

Equities fell last week as currencies from Turkey to Argentina tumbled, spurring concern that the turmoil in emerging markets may threaten a global economic recovery. While surprise rate increases by central banks in Turkey and South Africa failed to boost their currencies, the Fed opted to press on with reductions to monetary stimulus.

The Nikkei 225, which surged 57 percent in 2013 for its biggest increase since 1972, is the worst performer this year among 24 developed equity markets tracked by Bloomberg. The Nikkei Stock Average Volatility Index rose 3.9 percent to 30.25 today, indicating traders expect a swing of 8.7 percent on the equity gauge over the next 30 days.

Mothers Slides

The Nikkei 225 will tumble to 9,000 by year-end as a sales-tax increase in April and a slowdown in emerging markets cause an unexpected decline in corporate earnings, Makoto Kikuchi, Tokyo-based chief executive officer at the hedge fund Myojo Asset Management Co. said in January.

The TSE Mothers Index of smaller companies sank 8.3 percent today, the most since June 26. The Jasdaq Index retreated 4.5 percent, also its biggest drop in seven months.

Earnings season peaks this week for companies on the Topix, with about 640 firms reporting. Of the 148 companies on the gauge that have posted quarterly results since Jan. 1 and for which Bloomberg has estimates, 63 percent beat analyst projections for profit.

A Topix gauge tracking utilities sank 3.7 percent today. Hokkaido Electric and Kansai Electric Power Co. led declines after reporting earnings last week.

Utilities Tumble

Hokkaido Electric sank 9 percent to 984 yen, the biggest drop among the power producers. The utility forecast a full-year net loss of 77 billion yen and said it won’t pay a dividend. Kansai Electric slumped 7.8 percent to 1,024 yen after it forecast a 98 billion yen net loss, which was wider than analysts expected. Kyushu Electric slid 4.5 percent to 1,134 yen after projecting a 125 billion yen loss for the year.

Shares of utilities including Hokkaido Electric may see short-term weakness after disappointing earnings, Citigroup Inc. analysts Takashi Miyazaki and Takayuki Naito wrote in a report dated Jan. 31.

Brokerages fell the most among the Topix’s 33 industry groups. Daiwa Securities sank 4.9 percent to 923 yen, its biggest drop since June 13, as a slump in Japanese stocks threatens to crimp trading commissions and curtail earnings growth. Net income rose to 43.4 billion yen for the three months ended Dec. 31 from 14.1 billion yen a year earlier, the Tokyo-based firm said last week.

Goldman Sachs Group Inc. analysts led by Katsunori Tanaka maintained their sell rating on the company, saying its shares look overvalued relative to the financial sector.

Nomura Holdings Inc., Japan’s largest securities company, sank 3.3 percent to 701 yen. A Topix gauge tracking consumer lenders and other financial shares dropped 4.1 percent for the second-biggest drop among the subsectors.

NGK Insulators

Among shares that rose, NGK Insulators jumped 12 percent to 1,964 yen, the most on the Nikkei 225. The company boosted its profit forecast by 8 percent to 27 billion yen for the year ending March 31, while also raising its operating profit outlook to 42 billion yen.

Seiko Epson Corp. surged 13 percent to 3,055 yen, its highest close since Sept. 4, 2008. The maker of printers, scanners and watches lifted its full-year net-income forecast by 53 percent to 52 billion yen on Jan. 31. Analysts surveyed by Bloomberg expected 45.2 billion yen.

The Topix traded at 1.21 times book value today, compared with 2.53 for the S&P 500 on Jan. 31. The gauge’s price-to-estimated-earnings ratio was 14.4 today, compared to 15.2 for the S&P 500 at the end of last week. Volume on the Japanese gauge was 5.6 percent above the 30-day average today.