Investor Anxiety Spikes in Tokyo Equities as Brexit Fears Loom

Updated on
  • ‘Everyone’s scared,’ says Toyo Securities strategist Otsuka
  • Short-selling in Tokyo surged to record high on Friday

Japanese stocks tumbled the most in four months as fears over whether the U.K. will vote to leave the European Union sent investors scrambling for haven assets.

Investor anxiety spiked, with the Nikkei Volatility Index, a measure of market turbulence, jumping the most since the start of February. Bearish wagers in the nation’s shares surged to a record high on Friday, a bet that proved prescient as the Topix index slumped 3.5 percent on Monday, its biggest loss since Feb. 12.

“Everyone’s scared,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “There are too many events coming up for investors to take a plunge.”

The Topix closed at 1,284.54 on Monday, with just 39 stocks rising while 1,895 shares fell. The Nikkei 225 Stock Average sank 3.5 percent to 16,019.18. The yen strengthened 1.1 percent to 105.82 per dollar.

Japan’s exporters are bearing the brunt of the fears, with the shares slumping as investors seek haven assets including the yen. The currency rallied 1.6 percent against the pound on Friday after a poll indicated those in the U.K. in favor of leaving the E.U. surpassed those who want to remain part of the bloc. Adding to woes is uncertainty over whether the Bank of Japan will add to easing at its meeting on June 16, a day after the Federal Reserve’s decision on monetary policy.

While traders see zero chance of the Federal Reserve raising rates at its meeting this week, expectations for whether the BOJ will add to stimulus is less certain. A majority of 55 percent forecast more easing from the BOJ on July 29, while 27.5 percent project a change as soon as June 16, according to a Bloomberg survey of 40 economists conducted June 6-10.

‘Leave’ Lead

A survey by ORB for the Independent newspaper found 55 percent in favor of a so-called Brexit, with 45 percent for “remain.” It’s the biggest “leave” lead recorded by ORB in polls for the newspaper.

Increasing anxiety over the possibility of Britain leaving the E.U. sent the Nikkei Volatility Index soaring 25 percent to 32.38 on Monday, its highest level since February 9, after a month of relative calm. Short-selling of shares on the Tokyo Stock Exchange surged to 47.1 percent on Friday, the highest in records going back to 2008, according to exchange data compiled by Bloomberg.

No Cover

“Usually when short-selling increases, we see a rally follow as traders cover their bets,” said Masahiro Ichikawa, a senior strategist at Sumitomo Mitsui Asset Management Co. in Tokyo. “This time, we have some big events ahead of the Brexit vote, and so there’s a chance short positions will just increase further.”

Electric-appliance makers and car manufacturers were the biggest drags on the Topix among its 33 sectors. Industrial-machinery maker Hitachi Ltd. fell 6 percent and automaker Mazda Motor Corp. sank 6 percent. Energy explorer Inpex Corp. declined 5.8 percent as crude fell a third day after the number of rigs drilling for oil in the U.S. rose for a second week.

“The market hates uncertainty,” said Yoshinori Ogawa, a market strategist at Okasan Securities Co. in Tokyo. “Most market participants think that the U.K. will probably remain, but we’re seeing some poll results that show those who’ll vote to leave outnumber the ‘remain’ camp, and this is making investors uncertain.”

Futures on the S&P 500 Index slipped 0.5 percent, after the underlying U.S. equity gauge fell the most in three weeks on Friday.