Japanese Stocks Retreat as Insurers Lead Declines; Pioneer Drops

Jun 25, 2014 3:02 am ET

June 25 (Bloomberg) -- Japanese shares fell, with the Topix index headed for its second drop this week, as insurance companies led declines and investors weighed the nation’s new growth strategies.

A gauge tracking insurers sank 1.5 percent for the biggest decline as all the Topix’s 33 industry groups slid. OAT Agrio Co. slumped 6.6 percent on the fertilizer producer’s market debut. Pioneer Corp. fell the most on the Nikkei 225 Stock Average after jumping yesterday. Euglena Co. tumbled 12 percent, after surging 42 percent through yesterday since June 16, after announcing details of a tie-up with Isuzu Motors Ltd.

The Topix slid 0.6 percent to 1,260.83 at the close in Tokyo with about three shares falling for each that gained. The Nikkei 225 Stock Average sank 0.7 percent to 15,266.61. The yen gained 0.1 percent to trade at 101.91 per dollar. The Standard & Poor’s 500 Index lost 0.6 percent yesterday.

“Japanese shares are falling today led by overseas markets that declined,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd. “There was no surprise from the government’s growth strategy, so it’s not a reason to chase the top, nor is it a reason to sell. Shares have reached a level they haven’t been at in a while, so we’re seeing profit-taking.”

The Topix gained 9.6 percent from its May 21 low, while the MSCI World Index advanced 3 percent in the period. Prime Minister Shinzo Abe said deflation has ended and will be thwarted by new government policies designed to encourage business expansion. He was speaking in an interview in Tokyo yesterday before his cabinet endorsed the strategy package.

The plan, which was little changed from previous drafts, has Japan cutting corporate taxes from fiscal year 2015, with the aim of lowering the rate to below 30 percent in a few years. Other measures include creating a corporate-governance code and increasing the number of foreign workers in the nation.

Overheating Signals

The 25-day Toraku Index, which compares the numbers of advancing and declining stocks on the Topix, rose to 164 yesterday, its highest level since December 2012, signaling to some investors that shares have climbed too far, too fast. The Topix’s 14-day relative strength index climbed to 74, with a reading above 70 indicates stocks may be poised to drop.

Insurance shares led declines on the Topix, followed by textile makers and consumer lenders.

Dai-ichi Life Insurance Co. dropped 2.4 percent to 1,499 yen. Toray Industries Inc., which makes textile products, slid 2.3 percent to 671 yen. Financial services provider Aiful Corp. fell 3.2 percent to 570 yen.

OAT Agrio closed at 3,925 yen on its first day of trading, 6.6 percent lower than its initial public offering price.

“Not only is there concern about its liquidity being on the second section of the Tokyo Stock Exchange, but the price looks high, and their business conditions don’t leave much of an impression on investors,” said Toshiaki Iwasaki, an analyst at Mito Securities Co. Ltd. in Tokyo.

Pioneer Drops

Pioneer slumped 3.5 percent to 221 yen, paring yesterday’s 4.1 percent advance. Onkyo Corp. will buy a stake in Pioneer’s audio-visual business, according to a statement to the Tokyo bourse yesterday, confirming an earlier Nikkei newspaper report.

Euglena plunged 12 percent to 1,399 yen. The company said it will begin a next generation bio-diesel project with Isuzu. Toyota Motor Corp. also said today that it will start fuel-cell vehicle sales in Japan by the end of this fiscal year.

Futures on the S&P 500 slid 0.1 percent. The measure retreated yesterday as reports of escalating violence in the Middle East overshadowed data that boosted optimism in the world’s biggest economy.

U.S. Recovery

A Commerce Department report showed purchases of new homes in the U.S. rose in May by the most in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year. The Conference Board’s index of U.S. consumer confidence increased to 85.2 in June from 82.2 a month earlier, the New York-based private research group said, beating the median projection in a Bloomberg survey of 70 economists which called for a reading of 83.5 in June.

The Syrian Air Force killed at least 50 people in Iraq’s western province of Anbar yesterday as foreign forces seek to beat back the insurgency, according to the Wall Street Journal. U.S. Secretary of State John Kerry was in Iraq seeking to prod the country’s leaders to unite against an al-Qaeda offshoot that has seized control over areas of OPEC’s second-biggest oil producer.

The Topix traded at 1.2 times book value at the close, compared with 2.7 for the S&P 500 and 1.9 for the Stoxx Europe 600 Index yesterday. Volume on the Japanese equity gauge was 12 percent lower than the 30-day average today.

--With assistance from Yuko Takeo in Tokyo.