Business / Financial Markets

Nikkei 225 logs biggest loss since December, with Tokyo stocks dropping 3% on global economic fears

Kyodo/bloomberg/reuters

Tokyo stocks tumbled Monday, with the Nikkei 225 index logging its biggest point loss since Dec. 25 on rekindled concerns over the global economy following the release of sluggish U.S. and European economic data.

Investors ditched shares and fled to the safety of bonds as risk assets fell out of favor on growing fears of a U.S. recession, sending global yields plunging.

The Nikkei ended the day 650.23 points, or 3.01 percent, lower at 20,977.11, its lowest close since Feb. 15. The broader Topix, which covers all first section issues on the Tokyo Stock Exchange, finished 39.70 points, or 2.45 percent, in the red at 1,577.41.

Every industry category in the main section lost ground, led by oil and coal product, nonferrous metal and machinery issues.

Tracking slumps in U.S. and European shares late last week, Tokyo stocks opened sharply lower and later extended their losses to fall below the 21,000 threshold. The Nikkei briefly lost over 700 points.

The day’s fall was the largest for the Nikkei since Dec. 25, when it closed 1,010.45 points lower.

“Investors turned risk-off following a series of economic data,” said Akira Tanoue, a senior strategist in the investment research department at Nomura Securities Co. “Concerns about the global economic recession are emerging.”

Manufacturing output data from Germany came in weaker than expected, while measurements of manufacturing and services activities in the United States showed sluggishness.

Makoto Sengoku, a market analyst at the Tokai Tokyo Research Institute, said the market “overreacted” to the overseas data and economic growth would not weaken sharply.

In the first section, declining issues outnumbered advancers 2,014 to 104, with 22 ending the day unchanged.

Nikkei heavyweight SoftBank Group Corp., which invests heavily in global startup technology companies, slid ¥565, or 5.0 percent, to ¥10,705.

Construction machinery company Komatsu Ltd. declined ¥110.50, or 4.1 percent, to ¥2,554.50, and factory automation equipment firm Fanuc sank ¥750, or 3.8 percent, to ¥18,800.

Trading volume on the main section fell to 1.33 billion shares from Friday’s 1.37 billion.

As the sell-off that struck the U.S. and Europe on Friday ripped through Asian stock markets, investors said more pain is yet to come.

Indexes in Australia, Hong Kong and China also tumbled Monday. The moves came after U.S. shares notched their worst day in 11 weeks on Friday as a gauge of Treasuries inverted and data from Europe renewed fears about global growth.

U.S. 10-year treasury yields were 1.9 basis points below three-month rates after yields inverted for the first time since 2007 on Friday. Historically, an inverted yield curve — where long-term rates fall below short-term — has signaled an upcoming recession.

After almost three months of optimism surrounding U.S.-China trade talks and dovish central bank messaging spurred the best start to a year for global equities in two decades, investors have shifted focus and are starting to react to bad omens for the economy.

“The market had gone too far in pricing in good news,” said Nader Naeimi, head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “It was just a matter of time. This is going to be the start of a multiweek correction in markets.”

Despite a surprisingly dovish stance by the Federal Reserve last week, the S&P 500 Index lost about 0.8 percent for the week as the yield on 10-year Treasuries, already at a 14-month low, extended its decline.

“Historically a ‘dovish’ Fed is not necessarily a good sign, as it announces that an economic downturn is on the way,” said Eleanor Creagh, Sydney-based market strategist at Saxo Capital Markets (Australia). “And the bottom line is growth is slowing,” she said.

“We are reaching that point where the weakening fundamentals are catching up with the equity market, the equity market has been buoyed by buybacks and is waking up to the fact that the Fed is not raising rates because the U.S. economy needs support and is weak as we approach the buyback blackout period,” Creagh said.

With less than a week left in the first quarter, some investors may be taking money off the table, according to Kerry Craig, the Melbourne-based global market strategist at JPMorgan Asset Management. “After such a strong quarter, profit-taking shouldn’t be unexpected.”

Naeimi isn’t alone in his view that global stock markets could be headed for a correction.

“If the market did correct 10 percent, I wouldn’t be surprised,” said JPMorgan’s Craig. “I’m not sure it’s the start of it, but I don’t see a huge amount to support for the market.”

Still, not everyone is pessimistic. While a short downturn in global markets is possible, Bryan Goh, executive director and chief investment officer for Singapore at Bordier & Cie, said it probably won’t last.

“As long as central banks have our back, there’s no serious problem,” Goh said. “The global slowdown isn’t a surprise, so markets are prepared.”