Japanese stocks fall the most in over a year as China rout takes toll

  • Reuters
  • Stock Market News
Japanese stocks fall the most in over a year as China rout takes toll
Credit: © Reuters.

* Nikkei, Topix fall over 3 pct, biggest fall since early 2014

* Trading volume surges both in cash and futures market

* Construction equipment makers, trading houses fall sharply

By Hideyuki Sano

TOKYO, July 8 (Reuters) - Japanese stocks tumbled on Wednesday in their biggest drop in more than a year, as fears grew that a relentless selloff in Chinese shares could ripple through its economy and hurt Japanese companies exposed to the Asian giant.

Construction equipment makers Komatsu Ltd 6301.T and Hitachi Construction Machinery 6305.T , which derive sizable revenues from their China operations, skidded 5.8 percent and 4.0 percent, respectively.

The Nikkei average .N225 fell 3.1 percent, its biggest fall since March last year, to a seven-week low of 19,737.64 while the broader Topix .TOPX shed 3.3 percent, its largest decline in almost a year and a half.

The Topix fell to a two-month closing low of 1,582.48, with turnover hitting 3.39 trillion yen, about 45 percent above the average in the past year.

Trading volume in the Nikkei futures front-month contract JNIc1 hit the highest level in almost six months.

The selling frenzy was sparked by yet another plunge in Chinese shares, which have lost more than a third of their value in just one month despite stepped-up emergency support measures from Beijing.

Investors worry that market rout could deliver a fresh blow to an already slowing Chinese economy.

"Today is a 'China day'. This is going to affect the real economy. Chinese people who had made fortunes on stocks should have been spending a lot but that is likely to change," said Seiki Orimi, senior investment strategist at Mitsubishi UFJ Morgan Stanley (NYSE: MS ) Securities.

As concerns about Chinese economy hit commodity prices, trading houses, which have big commodities business, also tumbled.

Sumitomo Corp 8053.T fell 5.2 percent while Mitsubishi Corp 8058.T 3.7 percent.

"The ripple effect from the market correction (in China's economy) has yet to show up," wrote Bank of America (NYSE: BAC ) Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."

Itochu Corp 8001.T fell 9.2 percent, taking an extra hit from a Nikkei business daily article that its plan to buy a stake in Bosideng International Holdings 3998.T was rejected by the Chinese apparel company's shareholders.

Other casualties included tourism-related shares, which have benefited from shopping sprees by a surging number of Chinese tourists visiting Japan. Department store operator Isetan Mitsukoshi 3099.T fell 3.9 percent.

Some analysts said the latest fall in the Nikkei could attract long-term investors as the benchmark is now trading below 16 times expected profits - relatively inexpensive levels - for the first time since February.

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