Japan Stocks Tumble as Sosei, Cyberdyne Fuel Small-Cap Selloff

Updated on
  • Yen gains on concern the U.K. will vote to leave the EU
  • Most Topix groups decline while start-up biotech stocks slump

Japanese stocks tumbled, with the Topix index closing at its lowest level in two months while a gauge tracking the nation’s small-cap shares posted its biggest drop since August.

High-growth biotech companies Sosei Group Corp. and Cyberdyne Inc. plunged at least 7.1 percent as investors dumped some of the high-flyers on the Tokyo Stock Exchange Mothers Index. Anxiety intensified as traders fled to safe-haven assets on concern Britain will vote to leave the EU on June 23 while also bracing for monetary policy decisions from the Federal Reserve and Bank of Japan this week.

“The risk of Britain leaving the EU remains,” said Takashi Ito, a Tokyo-based equity strategist at Nomura Securities Co., Japan’s biggest brokerage. “The Brexit issue has appeared in addition to an already difficult-to-move situation as we wait for central bank meetings in the U.S. and Japan.”

The Topix fell 1 percent to 1,271.93, after a 3.5 percent plunge Monday, while the Nikkei 225 Stock Average lost 1 percent to 15,859. The Mothers Index, which had surged 31 percent this year through last week, plunged 10 percent to 999.91 today, taking its two-day drop to 14 percent.

Soaring Volatility

The yen strengthened for a third day to 105.95 against the dollar after global currency and equity volatility soared on Monday, with four polls from three companies on the U.K. referendum putting the “Leave” campaign ahead of “Remain.” The Sun, Britain’s biggest-selling newspaper, backed a so-called Brexit on its front page.

The Topix is down 18 percent in 2016, the second-biggest drop among the major markets. Investors have had a hard time dealing with the BOJ’s impact on the market this year after a surprise move to introduce negative rates in January sent bank stocks tumbling, and the central bank surprised traders again by refraining to add to stimulus at its last meeting in April.

While traders see zero chance of the Fed raising rates on Thursday, uncertainty remains over whether the BOJ will add to stimulus. About 28 percent of 40 economists surveyed by Bloomberg project a change from the BOJ as soon as June 16, while 55 percent forecast more easing on July 29.

Mothers Plunges

The surge in Japan’s small-cap shares this year has left the Mothers index trading at 44 times price-to-earnings, about three times higher than those on the Topix. Sosei, the biggest member of the Mothers gauge after shares surged as much as 159 percent this year, tumbled 17 percent on Tuesday to be the biggest drag on the index. Cyberdyne, a maker of robot exoskeletons, was the second-largest laggard with a 7.1 percent drop.

Eye-treatment developer Acucela Inc. plunged 24 percent after saying it has ended a tie-up with Otsuka Pharmaceutical Co. because a clinical trial of its eye-disease treatment failed to meet objectives. Acucela shares have dropped close to 70 percent over the past month after saying the clinical trial didn’t meet targets.

“We’re seeing profit-taking in the wider biopharmaceutical sector, including Sosei, because of the shock from Acucela,” said Masayuki Otani, chief market strategist at Securities Japan Inc. “With some risk-off moves in the wider market as well, the selling pressure on growth stocks suddenly surged.”

All but one of the 33 industry groups on the Topix sank, led by brokerages, banks and agricultural stocks. Sumitomo Mitsui Financial Group Inc. dropped 2 percent and Mitsubishi UFJ Financial Group Inc. fell 2.2 percent.

Futures on the S&P 500 Index were little changed. The underlying U.S. equity gauge fell to a three-week low on Monday.

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