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Even Hardened Japan Stock Veterans Are Feeling Less Sure

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It was one of those days in the Japanese stock market where even the most experienced equity salesmen and traders -- and their customers -- started to feel less confident.

Take Stefan Worrall, director of Japan equity sales at Credit Suisse Group AG in Tokyo, who’s been watching big days for the Topix index for more than 15 years. It’s not that people have turned bearish on the country’s equities after the benchmark index slumped for a second day to its worst decline since November 2016, Worrall says. But they’re just that little bit less certain of their footing after the “surprisingly sudden” selloff.

"Optimism that we will see a bounce soon still reigns," Worrall said in an interview. "But that optimism could crack if we have another day of this."

The Nikkei 225 Stock Average entered a so-called correction Tuesday, capping a decline of 10 percent from a 26-year high reached last month. As all but two companies in the blue-chip gauge retreated, a measure of volatility spiked by more than 50 percent. And the rout was even more severe in Japan’s indexes for smaller shares.

Andrew Clarke of Mirabaud Asia Ltd., a Japanese equity bull who’d been touting a target of 25,000 for the Nikkei 225, painted a similar picture. Clients aren’t putting in frantic sell orders, the Hong Kong-based director of trading at the brokerage said, before going to note that the rout was worse than his customers anticipated.

Clarke has taken to explaining to clients that the surge in the Nikkei 225 was too sudden, so it’s hardly surprising for stocks to come down to earth. The measure soared 25 percent from Sept. 8 to its January high, he notes. That’s “not sustainable or realistic,” Clarke said.

The veteran of Asian equity markets is also walking back his own optimism. While he still thinks the Nikkei 225 will reach 25,000 -- the measure closed Tuesday at 21,610.24 after surpassing 24,000 in January -- he says this will take a little longer. “We didn’t quite make 25,000, but 24,100 was close-ish,” he said of his prediction.

Some Reprieve

Still, investors have been heartened by the last hour of Tokyo stock trading Tuesday, when the Nikkei 225 and Topix started to pare declines. After falling as much as 7.1 percent, the Nikkei closed down 4.7 percent. They’ll also have noted moves in S&P 500 Index futures, which reversed losses and rose 1.3 percent as of 6:18 p.m. in Tokyo.

And while Tuesday’s rout has made people a little less certain that the selloff will be short-lived, that’s still the default position for many of those who spoke with Bloomberg.

“While our screens are a sea of red, it hasn’t felt like panic selling, yet,” Credit Suisse’s Worrall said. “That could come, of course, but it would be despite what still seem to be strong economic and earnings fundamentals.”

(Updates with latest market moves in eighth paragraph.)
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