Massive Selling in Japan Spreads to Global Markets
By DAVID JOLLY and MATTHEW SALTMARSH
Published: March 14, 2011
TOKYO — The prospect of a nuclear catastrophe in Japan led to massive selling Tuesday on global markets, driving the benchmark index in Tokyo down more than 10 percent, while Frankfurt tumbled 5 percent in early European trading.
Unnerved by the earthquake and tsunami that struck Friday, investors in Japan had already sent the Nikkei 225 index down more than 6 percent on Monday. They stepped up their selling Tuesday after another explosion occurred at the Fukushima Daiichi Nuclear Power Station and a fire released radioactive material into the air.
After falling more than 14 percent at one point, the Nikkei closed down 10.6 percent at 8,605.15 points, the lowest in nearly two years. The broader Topix, or Tokyo Stock Price Index, ended 9.5 percent lower.
Unlike on Monday, when stock market losses were largely confined to Japan, the nervousness spread Tuesday across
the Asia-Pacific region and to Europe, amid fears about the impact on the broader economy and corporate activity. The Kospi in South Korea dropped 2.4 percent, the Taiex in Taiwan fell 3.4 percent and the Hang Seng in Hong Kong sagged 2.9 percent. The key index in Australia was 2.1 percent lower, Singapore fell 2.8 percent, and the Sensex in India declined 1.5 percent. In mainland China, the Shanghai composite index dropped 1.4 percent.
In Europe, the DAX index in Frankfurt, one of the region‟s
strongest performers last year, had shed 5 percent by late morning, while the Euro Stoxx 50, an index of eurozone bluechips, had given up 4.1 percent.
Analysts said investors were fleeing risky assets like equities and commodities and switching into safer cash and bonds. Volumes were much higher than normal.
BNP Paribas Fortis in Philippe Gijsels, head of research at
Brussels, said the selling in Europe was a “knee jerk”
reaction to events in Japan. But he added, „if this continues
it could become a real problem.”
“I‟m worried,” he added, “the equity markets have come up
so far, so fast, with only minor corrections that the market is vulnerable.”
In addition, he said, policy makers have limited scope to handle major economic shocks, given the high level of budget deficits in the West and the fact that monetary policy options are almost exhausted.
Declines in Japanese and other Asian stock markets accelerated after Kyodo news agency quoted the Tokyo metropolitan government as saying that “minute levels” of
radiation have been detected in the Japanese capital. “People have gotten very nervous,” Tohru Sasaki, a foreign
exchange strategist at JP Morgan Chase, said. “We don‟t
know if we‟ll be able to make it to work tomorrow.”
He noted that officials had been saying that the radiation risk was low, but “when they say it‟s a problem for our
health, that will be too late.”
Analysts at Credit Suisse and Barclays Capital have
estimated the damage figure in Japan from the quake and tsunami at up to 15 trillion yen, or $183.5 billion. Mr. Sasaki said that while the damage had been “very large,” in the long
run, the stock market should reflect the prospect for corporate earnings. “But right now there‟s no arguing with
panic,” he said.
Emil Wolter, head of Asian strategy at RBS in Singapore, concurred. “My feeling is that the markets may be
overreacting and panicking a bit,” he said.
Investors also kept an eye on fast-moving events in the Middle East. On Tuesday, Iran denounced as unacceptable the arrival of Saudi troops in Bahrain as protests against the country‟s monarchy continue. The United States urged its nationals to leave the country, which hosts the U.S. Navy‟s
Like equities, commodities are perceived as being a risky asset and hence investors have been looking to reduce their exposure to oil, which has been surging in recent weeks. In London, the benchmark Brent crude oil futures contract was down $3.10 at $110.57 a barrel.
“Sentiment has turned more risk averse,” Benjamin
Schröder and Peggy Jäger at Commerzbank said in a
The International Energy Agency said in a report Tuesday that global oil demand would be lower than previously forecast in 2011 as high oil prices begin to have a toll on the global economy.
In a bid to quell the growing concerns, the Japanese central bank continued pumping liquidity into the financial system on Tuesday, adding to record amounts already injected on Monday.
At the end of a policy meeting on Monday, the Bank of
Japan had also announced that it would double an existing program to purchase government and corporate bonds and other financial assets, to 10 trillion yen.
Analysts broadly welcomed the central bank‟s efforts.
“They have done the right thing — in fact, it‟s pretty much
the only thing they can do right now,” said Mr. Lenherr of
LGT. In the medium term, he added, the authorities “will
have to discuss a new fiscal package, and fiscal consolidation will have to go out the window for the time being,” because
of the cost of the earthquake.
Mr. Wolter of RBS said the authorities in Japan had already
introduced substantial supportive measures, both for the disaster relief and the financial markets, and more stimulus efforts are likely to follow.
“They are dealing with a disaster on an unprecedented scale; the response to date has been pretty formidable,” he said.
The response also has helped prevent a more marked surge in the yen. The Japanese currency has come under upward pressure, rising in the wake of the quake on Friday as companies and insurance companies repatriated cash to help pay for the reconstruction costs. The Japanese currency was trading at 81.5 yen per U.S. dollar in London before midday, compared to about 83 yen before the quake hit on Friday.
Matthew Saltmarsh reported from Paris. Bettina Wassener contributed from Hong Kong.