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Nikkei drops 2.6pc to hit three-month low after Greek polls

TOKYO, May 7 — Japan’s Nikkei average fell to a three-month low today after elections in France and Greece raised concerns on whether euro zone economies will continue to pursue austerity measures, and as US jobs data came in weaker than expected.   

The Nikkei was down 245.99 points, or 2.6 per cent at 9,134.26 by the midday break, breaching below its 52-week moving average near 9,158 but holding above its 200-day moving average near 9,066. It traded at its lowest since February 15. The broader Topix index was down 2.5 per cent today.   

“It’s red all over the place. It’s pretty bad,” a trader at a US bank said, adding that concerns over the euro zone and slowing growth in the United States triggered yen buying, which further weighed on Japanese exporters.   

Display of gloom at the Tokyo Stock Exchange in Tokyo. — Reuters picDisplay of gloom at the Tokyo Stock Exchange in Tokyo. — Reuters picMobile social gaming companies Gree Inc and DeNA Co Ltd were standout losers, both shedding more than 20 per cent after a media report that Japan’s consumer agency may clamp down on online games that have gambling aspects.

Naomi Fink, Japan equity strategist at Jefferies, however, said the sell-off in Japanese stocks could offer buying opportunities for long-term investors, provided a Greek government could be formed in the next several days.   

“From valuation perspective, yes,” she said. “There is also a potential for Japanese companies to ramp up production ahead of summer peak demand period now that Japan’s nuclear reactors are all down.

“There could be opportunity in the near term ... But the Greek situation is a bit of a concern.”   

Greek voters enraged by economic hardship caused by the terms of an international bailout turned on ruling parties in an election yesterday, putting the country’s future in the euro zone at risk and threatening to revive Europe’s debt crisis.

The Topix index has fallen 9.5 per cent in the second quarter after rallying more than 17 per cent in January-March to log its best first-quarter performance in 24 years.    

As the index pulls back, Topix’s 12-month forward price-to-earnings ratio slips to 12.1 from this year’s peak of 13.5 hit in early March, according to Thomson Reuters Datastream.   

The US S&P 500 carries a 12-month forward P/E of 12.6, slightly more expensive than the Japanese index.   

Trading volume on the main board after the halfway point was light, at 41 per cent of its full daily average for the past 90 days.       

Exporters, financials suffer   

Exporters that were taking a beating today included Honda Motor Co, Toyota Motor Corp and Sony Corp, which shed between 3 per cent and 4.8 per cent.   

Financials also suffered as investors cut their exposure to risky assets. Nomura Holdings, Japan’s top investment  bank, sank 6.7 per cent, insurer Tokio Marine Holdings dropped 4 per cent and lender Sumitomo Mitsui Financial Group lost 2.9 per cent.   

French voters also ousted incumbent Nicolas Sarkozy, a key architect of bailouts for indebted countries and an advocate of austerity measures, in a presidential election yesterday, with winner Francois Hollande promising to start a pushback against German-led austerity policies.    

Adding to the political uncertainty in Europe, US employers cut back on hiring in April, spurring concerns the world’s largest economy is losing momentum.

Shun Maruyama, chief Japan equity strategist at BNP Paribas, said he expected Japanese equities to rally in June or July, however, led by short-covering, after a correction in May.   

He said the short-selling ratio of 25.5 per cent in April was approaching the critical point of 28-30 per cent, when investors are more likely to cover their bearish bets. — Reuters

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