TOKYO – The Nikkei index’s average share plunged 10.6 percent on Tuesday, posting the worst two-day rout since 1987, as hedge funds bailed out after reports of rising radiation near Tokyo. Many mutual funds were left on the sidelines, leaving them poised to dump shares into any rebound.
The yen tripped on talk of intervention by authorities trying to contain the economic impact from last week’s devastating earthquake and tsunami, but then recovered. The government bond yields rose as investors sold debt to offset stock market losses. The scale and speed of the equity selloff forced domestic fund managers to sit on the sidelines as market volumes surged to a record for a second day running.
“Even if we wanted to sell today there was very little we could do,” said a manager at a Japanese fund, asking not to be named because he was not authorized to speak to the media. “We didn’t sell and waited, sidelined because hedge funds were just dumping stocks in panic.” At one point, the Nikkei had plunged 14 percent after Prime Minister Naoto Kan said the risk of nuclear contamination was rising at the Fukushima Daiichi complex on Japan’s quake ravaged northeastern coast, 240 km north of Tokyo.
The French embassy said low-level radiation could hit Tokyo within hours. Local reports of radiation rising in communities near Tokyo only stoked the sense of panic. In contrast to Monday’s trading, when construction stocks rose in anticipation of revenue from rebuilding contracts, none of the 225 constituents of the benchmark Nikkei average gained on Tuesday.
Shares of construction company Kajima Corp (1812.T: Quote, Profile, Research, Stock Buzz) slid 13 percent, a day after its shares surged. The broad TOPIX index of Japanese stocks has shed 16.3 percent this week, the worst two-day losing streak since the global equity crash of October 1987. “All focus is on the nuclear crisis,” said Hideyuki Ishiguro, a supervisor at Okasan Securities in Tokyo.
“Foreign investors and domestic fund operators are pulling out from Japanese shares.” The Nikkei share average N225 dropped 10.6 percent to 8,605.15, while the TOPIX share index lost 9.5 percent to 766.73. TOPX – both worst single-day slides since the global sell off after the Lehman Brothers collapse in 2008. The Tokyo Stock Exchange’s first section, making up the country’s biggest companies, has lost about $626 billion in market capitalisation this week.
First section volume totaled 5.77 billion shares, a nearly 20 percent increase from Monday’s record. Traders said that overseas hedge funds were particularly aggressive sellers in Nikkei futures, especially the Singapore-listed contracts. The massive swings in futures sent implied volatility on Nikkei options JNIATMIV.OS soaring to 71 percent, the highest since the financial crisis.
During the first phase of the rout, many domestic portfolio managers sat on the sidelines to await more clarity on the nuclear troubles. But, some investors threw in the towel on Tuesday. “Today’s market moves truly show the severity of Japan’s situation. It’s a true market
