Tokyo stocks tumbled on the first trading day of 2016 on Monday, with the Nikkei index ending down more than 3 percent, as a further decline in Chinese manufacturing conditions in December stoked ongoing concern about a slowdown in the world’s second-largest economy.
The 225-issue Nikkei Stock Average ended down 582.73 points, or 3.06 percent, from last Wednesday at 18,450.98, a roughly 10-week closing low. Tokyo markets were closed Thursday and Friday for the New Year holidays.
Crude oil surged after Saudi Arabia expelled Iran’s diplomats from its borders following an attack on its embassy in Tehran to protest the Saudis’ execution of a Shiite cleric.
“We were starting to see signs that the economic slowdown in China had run its course, but today’s data is a disappointment,” said Masayuki Otani, Tokyo-based chief market strategist at Securities Japan Inc. “The Saudi Arabia and Iran issue might be good for oil, but the increase in geopolitical risk means it’s an overall negative for the financial markets.”
The broader Topix index of all First Section issues on the Tokyo Stock Exchange finished 37.63 points, or 2.43 percent, lower at 1,509.67.
Foods, chemicals and transport equipment issues led decliners.
The Nikkei ended the first day of trading lower than the previous year’s close for the third year running.
Stocks opened lower, with investor sentiment dampened by losses on Wall Street on New Year’s Eve last Thursday. The Dow Jones Industrial Average fell more than 1 percent to close lower on an annual basis for the first time in seven years.
Losses then widened dramatically after the release midmorning of the private-sector Caixin purchasing managers’ index showed a further decline in business conditions for Chinese manufacturers.
In China, a rout in Shanghai and Shenzhen stocks following the data’s release triggered a trading halt midafternoon local time.
Trading volumes in Tokyo remained low with some investors still on holiday, leaving the market prone to a volatile response to the Chinese data, said Hiroaki Hiwada, strategist at Toyo Securities Co.
“If Wall Street shows a more muted response to the Chinese data later Monday, Tokyo stocks will likely gain back some ground Tuesday to line up with the U.S. reaction,” Hiwada said.
Also fueling selling Monday were concerns over geopolitical conditions in the Middle East after tensions between Saudi Arabia and Iran deepened over the weekend, said Chihiro Ota, general manager of investment research at SMBC Nikko Securities Inc.