Japanese stocks set to sink again as reality bites


Prior to yesterday’s 6.5% drop in Tokyo (Nikkei 225 close at 8,899), the N225 had rallied 33% in the prior six sessions to recoup a good chunk of the 37% drop between Oct. 1 and the 26-year low reached Oct. 27 at 7,162. Yesterday I stated the obvious in that Tokyo would sell-off as reality set in post-Obama euphoria, but I made the point that the number of sellers would be limited. In fact, volume and turnover weren’t exactly heavy, although stocks were broadly lower.

Today, given the 785 point plunge in December N225 futures in Chicago (last at 8,370, also the daily low) and the de facto Nikkei tracking ETF iShares MSCI Japan’s [[EWJ]] drop of 8.7% to $8.55 (don’t comment or email me to talk about what EWJ actually is, instead read my EWJ fact sheet last updated in March), it is another no-brainer that stocks will trade lower in Tokyo. However, it is not so convincing that a lack of sellers can’t drive a market considerably lower, since if there’s a lack of buyers (and that’s exactly what happened when pension funds failed to shore up yesterday as they had been of late), stocks get easily bid down. I shall reiterate from recent articles that ultimately the existence of the controversial cross-shareholding structure in Japan provides the ultimate floor. Nevertheless, brace yourself for selling that potentially parallels the selling we just saw in the U.S. and across Europe.

Reality bites (just look at the now daily influx of companies cutting jobs on MarketWatch. Unsurprisingly consumer sentiment and spending reflect the times. How’s this grab you: October new auto sales in Japan down 13.1%, to 1968 levels; Toyota cuts FY2008 profit projections by 74% (by way of Japan Economy News Blog). Amidst all of this I retain some optimism while trying to remain patient and prudent. Bottom’s up, to value!