FILE PHOTO: A man is reflected on an electronic board showing a graph analyzing recent change of Nikkei stock index outside a brokerage in Tokyo, Japan, January 7, 2019. REUTERS/Kim Kyung-Hoon
May 16, 2019
By Ayai Tomisawa
TOKYO (Reuters) – Shares of Japanese automation machinery makers, construction firms and suppliers to Apple Inc. have borne the brunt of recent selling in the country’s stock market after an escalation in U.S.-Sino trade tensions.
The Nikkei index has fallen on 7 out of the last eight trading sessions amid a global market rout.
The slide came after a setback in the long-running trade war, when U.S. President Donald Trump hiked tariffs on $200 billion worth of Chinese goods, saying China reneged on commitments made earlier during negotiations. China retaliated on Monday.
Adding to the pressure on Asian equity markets, surprisingly weak Chinese data on Wednesday pointed to slower growth in the world’s second-largest economy, a big market for Japan.
Shares of Fanuc Corp, which makes industrial robots, have tumbled 8.5% so far this month.
The company saw a significant drop in its China sales for the fiscal year ended March 2019. China now accounts 19% of its overall sales, down from 30% a year ago.
Shares of servo motor maker Yaskawa Electric have dropped 9.2%, while Tokyo Electron and Advantest Corp are down around 7.5% each, underperforming a 5% drop in the Nikkei benchmark index.
“Machinery and exporters’ stocks are the most hit and will likely stay pressured in the next 2-3 months,” said Naoki Kamiyama, chief strategist at Nikko Asset Management.
He said it now seemed far fetched to expect Trump and Chinese President Xi Jinping would reach a deal by the time they meet on the sidelines of a G20 gathering in late June.
Machinery stocks vs Nikkei: https://tmsnrt.rs/2LIawx5
Japanese-based Apple suppliers have also turned sharply lower, with Murata Manufacturing diving 16%, Alps Alpine plunging 15% and Minebea Mitsumi sliding 13%.
Construction equipment makers with heavy China exposure are taking it on the chin, too.
Komatsu Ltd has dived 18%, while another Hitachi Construction Machinery has plunged 16%. Komatsu expects a 15.3% drop in operating profit for this fiscal year due to weak sales from such regions as China and North America for its construction, mining and utility equipment.
Investors expect Japanese exporters’ earnings will remain under pressure. Japanese companies are likely to report a 1% drop in pretax profits this fiscal year through March, Daiwa Securities said, while machinery firms are expected to see a 14% drop and precision equipment makers are seen posting a 9% fall.
According to BoFA Merrill, global fund managers’ Japan equity allocation showed that global investors have no plan to go overweight on Japan over the next 12 months as the profit outlook for Japanese equities has continued to deteriorate.
“On top of weak earnings concerns, there is another worry about Japan’s weak EPS which has a correlation with trade data,” said Shusuke Yamada, a FX/Equity strategist at Bank of America Merrill Lynch, referring to the earnings-per-share standard measure of equity returns.
“There is no room for Japan’s monetary policy to loosen further and the country’s population is not growing. Japan’s economy relies heavily on the global economy, so there is no domestic reason to buy Japanese stocks now.”
MSCI and export: https://tmsnrt.rs/2EcAFhf
(Reporting by Ayai Tomisawa; Editing by Kim Coghill)