Bloomberg News

Japan Stocks Fall on Auto Parts Rating, China Property Concern

November 18, 2011

Nov. 18 (Bloomberg) -- Japanese stocks fell as auto parts makers slid on a rating downgrade for the industry, and after a Chinese regulator was said to warn loans to property developers will likely sour as sales slow.

Toyota Boshoku Corp., a parts maker, slid 3 percent after Credit Suisse Group AG reduced its rating on the local sector to “market weight” from “overweight.” Fanuc Corp., a maker of industrial robots that counts Asia as its biggest market, slid 2.4 percent. Asahi Glass Co., which depends on Europe for about a fifth of its sales, fell 1.1 percent as rising Spanish bond yields stoked concern about Europe’s debt crisis.

The Nikkei 225 Stock Average fell 1.2 percent to 8,374.91 at the close in Tokyo, declining 1.6 percent for the week. The broader Topix Index retreated 1.1 percent to 719.98, with more than twice as many stocks dropping as rising. This is the last working day before the Tokyo Stock Exchange extends its trading hours by 30 minutes. The morning session will end at 11:30 a.m. starting Nov. 21.

“Auto-related companies are likely to cut their earnings outlook,” said Tomomi Yamashita, a senior fund manager in Tokyo at Shinkin Asset Management Co., which oversees $6 billion. “First the supply problems caused by Thai floods, then the weakening demand from a global economic slowdown, especially from Europe, and on top of that a continuing strong yen.” China-related shares have been under pressure amid the nation’s economic slowdown, he added.

The Topix sank 19 percent this year through yesterday amid concern Europe’s crisis and Thailand’s floods will hamper Japan’s export-led recovery. The decline has cut the price of shares on the index to 0.9 times estimated book value, compared with 1.08 times at the start of the year.

Auto Parts Downgrade

Toyota Boshoku fell 3 percent to 779 yen, while Denso Corp., an electronic-parts provider, retreated 2.9 percent to 2,108 yen after Credit Suisse reduced its rating on the industry. It said Toyota Motor Corp. may seek more cuts in parts prices to its affiliated suppliers, impacting their earnings outlook.

Fanuc declined 2.4 percent to 12,440 yen, while Hitachi Construction Machinery Co., which gets about a quarter of its sales in China, dropped 2.1 percent to 1,376 yen.

‘High-Risk’ Loans

China Banking Regulatory Commission warned lenders that some projects backed by local governments may run out of funds, and loans to property developers are likely to go bad, a person with knowledge of the matter said. The watchdog also said lenders should cut “high-risk” loans to developers, according to the person, who declined to be identified because the instructions were private.

China’s economy expanded in the third quarter at the slowest pace in two years amid monetary tightening and weaker export demand, according to statistics bureau data released last month.

Futures on the Standard & Poor’s 500 Index declined 0.2 percent today. The index fell 1.7 percent in New York yesterday after Spanish bonds sank, sending 10-year yields to the highest since the euro was introduced.

“Europe’s problems no longer seem something that’s isolated from Japan,” said Shinkin Asset’s Yamashita. “If it seeps into the global financial system it becomes a much more complicated problem.”

Asahi Glass slid 1.1 percent to 610 yen, while Nissan Motor Co., which depends on Europe for 15 percent of its sales, fell 2.5 percent to 673 yen.

Olympus Corp. sank 16 percent to 625 yen, the biggest decline on the Nikkei 225, after the New York Times reported the company is under investigation by Japanese officials on suspicion of cooperating with organized crime to conceal losses. The report cited a memo circulated at a meeting of the Securities and Exchange Surveillance Commission, Tokyo Prosecutors Office and the city police department.

--Editors: Jim Powell, Drew Gibson.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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