Topix Rebounds From Worst Drop Since May on GPIF Report

Japan’s Topix index rebounded from its biggest drop since May after a report the nation’s pension fund freed itself to buy more domestic equities and investors weighed geopolitical risks in the Middle East and Ukraine.

Mitsui Mining & Smelting Co. jumped the most on the Nikkei 225 Stock Average after raising its profit forecast above analysts’ estimates. Daiwa House Industry Co. advanced 6.3 percent after the homebuilder reported a 65 percent gain in profit. Sumco Corp. plunged 12 percent after the silicon-wafer maker’s net-income projection missed estimates.

The Topix rose 2 percent to 1,252.51 at the close in Tokyo, its biggest advance since April 16, with all but one of 33 industry groups gaining. The measure fell 2.4 percent on Aug. 8, its largest drop since May 7. The Nikkei 225 jumped 2.4 percent today to 15,130.52. The $1.2 trillion Government Pension Investment Fund temporarily removed a cap on local stock investment, the Nikkei newspaper reported. U.S. stocks rose on Aug. 8 on signs tensions were easing in Ukraine.

“The GPIF news is obviously positive and likely in the short term to push the market higher,” said Andrew Sullivan, head of sales trading at Espirito Santo Securities Inc. in Hong Kong. “Ukraine remains an issue but the fact that U.S. President Obama has outlined that U.S. involvement in Iraq will be limited is seen as positive. Gaza and Israel is still an issue and these geopolitical risks are likely to remain a concern to investors.”

GPIF Boost

Removing deviation limits would enable GPIF to allocate more of its assets to domestic stocks before changing its target for the asset class in an upcoming review of holdings. The fund is expected to boost its goal for local shares to about 20 percent of its portfolio around September from the current level of 12 percent.

Kotaro Mori of Japan’s Health Ministry, which oversees GPIF, declined to comment on the Nikkei report except to say limits were made flexible at the start of the fiscal year.

The report is “a surprise for the market in that they are going to increase stock holdings sooner,” said Shoji Hirakawa, chief equity strategist at Okasan Securities Co.

Futures on the Standard & Poor’s 500 Index climbed 0.2 percent today. The underlying equity gauge added 1.2 percent on Aug. 8 in New York, the biggest gain since March, with the measure rebounding from the steepest weekly drop in two years.

Ukraine’s military demanded that pro-Russian rebels surrender and dismissed their offer of a cease-fire, as lawmakers prepared to consider new sanctions that may cut Russian shipments of natural gas to Europe.

Iraq, Gaza

President Barack Obama said he won’t allow the U.S. to be dragged into another war and he will continue to urge Iraqi communities to reconcile.

U.S. air strikes against Islamic militants ravaging the north of the country continued yesterday. Obama said greater assistance in pushing back Islamic State forces would only come if a more inclusive government was formed that didn’t marginalize Sunni and other minorities.

Israel and Gaza Strip militants began to observe another Egypt-brokered truce, giving negotiators time to craft another accord after a month of violence in the Hamas-ruled territory.

Mitsui Mining jumped 7.4 percent to 305 yen, the most since March last year. The company boosted its net income forecast 14 percent to 17.1 billion yen, beating analyst estimates for 16.3 billion yen in profit.

Daiwa House

Daiwa House gained 6.3 percent to 2,058 yen, also the biggest increase in more than a year. Quarterly profit rose 65 percent to 30.7 billion yen, beating analyst estimates for 20 billion yen. The company kept its forecasts unchanged.

Sumco plunged 12 percent to 821 yen, the biggest drop on the Nikkei 225. The manufacturer forecast 3.2 billion yen in net income for the three months through September, below analyst estimates for 3.7 billion yen. The stock was cut to underperform from outperform by CLSA Ltd.

The Topix traded at 1.2 times today, compared with 2.6 for the S&P 500 and 1.8 for the Stoxx Europe 600 Index at the last close. Volume on the Japanese measure was 11 percent lower than the 30-day average today.

Before it's here, it's on the Bloomberg Terminal.