Nikkei Down Most In Two Years: China, US To Blame?

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Asian equity markets were down on Thursday, including Japan’s Nikkei index, which had its worst performance in two years, reports WSJ. Weak performance from Chinese manufacturing segment and expectations that U.S. Federal Reserve may exit the bond-buying in coming months could have been the main reasons for the fall.

Nikkei Down Most In Two Years: China, US To Blame?

Reasons for the fall

The Japanese stocks did experience some volatility in Thursday’s trading session. The shares were up early but after the report, showing dim Chinese manufacturing activity in May so far, was released the investors got concerned about the economic health of the second-largest economy.

In US, Ben Bernanke, chairman of Federal Reserve, told on Wednesday that in the next few meetings Fed may decide to start pulling back on its bond purchases or quantitative easing. This again hit the investor’s sentiment negatively.

Asian markets down

As a result, preliminary HSBC China Manufacturing Purchasing Managers’ Index was down to its seven-month low of 49.6 for May. The index below 50 reflects contraction in the manufacturing activity. Chinese stocks suffered the most. In Japan, Komatsu Ltd (OTCMKTS:KMTUY) (TYO:6301) was down 7.5 percent, and automated machinery maker Fanuc fell 5.25 percent.

Nikkei Stock Average was down:

During the day, Nikkei Stock Average was down 1,143.28 points, or 7.3 percent, to 14,483.98, making it the largest fall (percentage wise) since the March 2011 earthquake and tsunami. Other Asian regions also were not far behind. Hong Kong’s Hang Seng Index was down 2.5 percent to 22,669.68, South Korea’s Kospi Composite declined by 1.2 percent to 1,969.19 and the Shanghai Composite Index fell 1.2 percent to 2,275.67.

The comments made by Fed’s chairman also resulted in a sell-off in U.S. Treasury’s that later roped in Japan. Following the comments, yield on 10-year Japanese government bonds climbed above 1 percent, which is the highest in more than a year.

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All the related parties like banks, brokerage houses and Real estate developers were at the receiving end owing to increase in yields. Earlier, Bank of Japan also announced on Wednesday that it will take no further measures to suppress yields and will move forward with the current bond-buying program.

Asian currencies and the Australian dollar were also seen struggling for the same reasons as the equities.

Sell-offs expected

According to some of the analysts, the sell offs were expected especially after a good run in the recent months. An analyst at AMP Capital in Sydney said “All of Asia has had such huge gains, so we had to have a correction sooner or later.”  Experts believed that Nikkei was due for a fall or correction as the index was up more than 10 percent above its 25-day moving.

Further Reading Kyle Bass’ Latest Poll Tells Him Japan Will Implode

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