Bloomberg News

Japan’s Topix Hits Two-Month High on Easing Expectations

July 03, 2012

Japanese stocks rose, with the Topix (MXAP) Index closing at a two-month high, on expectations shrinking U.S. manufacturing may spur the Federal Reserve to ease policy and that the European Central Bank will cut rates to contain the debt crisis after the region’s unemployment hit a record high.

Canon Inc. (7751), a camera maker that gets nearly 60 percent of its sales from the Americas and Europe, gained 1.3 percent. Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 bank by market value, climbed 1.6 percent after the sector’s rating was upgraded by Daiwa Securities Group Inc. Kawasaki Kisen Kaisha Ltd. (9107) plunged 15 percent after the shipping line said it will sell shares equivalent to a quarter of its market value.

The Topix rose 1 percent to 777.11 at 3 p.m. in Tokyo, the highest close since May 2. About four shares rose for each that fell. The benchmark Nikkei 225 Stock Average (NKY) added 0.7 percent to 9,066.59, with volume about equal to the 30-day average.

“Expectations the Fed and ECB may take action to prevent the real economy from deteriorating are supporting stocks,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., which manages about $75 billion. “Negative economic data has already been factored into stock prices.”

The Topix has fallen 11 percent from its peak on March 27 as growth in the U.S. and China slows amid concern Europe’s debt crisis is spreading. The decline has cut the price of shares on the gauge to 1.1 times book value, compared with 2.2 times for the Standard & Poor’s 500 Index and 1.4 times for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than value of their assets.

Easing Expectations

Shares rose on optimism for additional policy easing after U.S. manufacturing unexpectedly shrank in June for the first time since the world’s biggest economy emerged from a recession three years ago, indicating a pillar of the expansion may be faltering, a report showed yesterday.

The contraction may encourage more accommodative policies, Princeton University economist Alan Blinder said in an interview on Bloomberg Television.

“Data like this that keep coming in are encouraging or strengthening the positions of the doves on the Fed,” said Blinder, a former vice chairman at the central bank.

Canon climbed 1.3 percent to 3,195 yen. Mitsubishi Motors Corp., an automaker that gets almost 40 percent of its sales from the U.S. and Europe, gained 2.5 percent to 81 yen.

Futures on the S&P 500 added 0.1 percent today. The gauge gained 0.3 percent in New York yesterday as takeovers helped the market recover from earlier losses triggered by reports of shrinking manufacturing. Among the deals announced, Micron Technology Inc. agreed to pay $2.5 billion for bankrupt Japanese chipmaker Elpida Memory Inc.

Europe Joblessness

Unemployment in the 17-nation euro area reached the highest on record as a deepening economic slump and budget cuts prompted companies from Spain to Italy to reduce their workforces, a report showed yesterday.

European stocks rose as investors bet the jobless data will spur central banks (TPX) will further ease policy to contain the debt crisis. The ECB and the Bank of England are scheduled to announce interest-rate decisions on July 5. ECB officials are expected to lower the key rate by a quarter point to a record- low 0.75 percent, according to the median forecast in a Bloomberg survey of 57 economists.

Banks contributed the most to the Topix’s gain after Daiwa Securities boosted the sector rating to bullish from neutral, saying lenders’ shares are still undervalued even though earnings are firm.

Banks Advance

Sumitomo Mitsui Financial Group (8316) climbed 1.6 percent to 2,660 yen. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender by market value, gained 3.2 percent to 392 yen. The individual ratings for the two banks were also raised to buy from outperform by Daiwa Securities.

Among companies that fell, Kawasaki Kisen plunged 15 percent to 134 yen to lead declines on the Nikkei 225. Japan’s third-biggest shipping line by sales said it will raise as much as 28.6 billion yen ($360 million) in a public share sale. The company also cut its full-year net income forecast 73 percent to 3 billion yen, citing a drop in the value of investment securities.

-- With assistance from Toshiro Hasegawa in Tokyo. Editor: Jim Powell

To contact the reporter on this story: Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

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


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