Japan - The major Japanese stock indexes suffered significant losses during the week and some benchmarks moved into bear market levels as global equity markets came under pressure. The Nikkei 225 Stock Average fell 5.7% for the week, ending Friday 11.4% lower for the year-to-date period and down about 17% from the high it reached in early October. The broad-based, large-cap TOPIX Index and the TOPIX Small Index lost 6.5% and 9.2%, respectively, leaving both down more than 20% from the year-to-date highs they reached in January.
At the close of Japan’s trading session on Friday, the yen stood at ¥111.06 per U.S. dollar, stronger for the week and versus ¥112.70 at the start of 2018. Softbank Group and Sony were among the notable decliners as shares of each company fell more than 9% for the week. Tech conglomerate Softbank’s initial public offering of its mobile phone business—believed to be the largest IPO in Japanese history—was a disappointment, and shares of the new entity fell on the first day of public trading. According to Bloomberg, overseas investors have sold about $48 billion of Japanese stocks in 2018, the highest level since 1987, and the TOPIX Index is experiencing its worst December since 1959.
As expected, the Bank of Japan kept its accommodative monetary policy unchanged at its December meeting, but BoJ Governor Haruhiko Kuroda said at his post-meeting news conference that the central bank could increase stimulus if the economy slows. Japanese exports, one of the most closely watched economic reports of the week, grew just 0.1% in November year over year, a possible reflection of slowing growth in China, one of Japan’s leading trading partners.
China - Markets in mainland China slumped for the week as a new policy aimed at supporting small businesses and a temporary thaw in the U.S.-China trade battle failed to lift investor sentiment battered by the U.S. stock market sell-off. For the week, the Shanghai Composite Index lost 3%. The large-cap CSI 300 Index, China’s blue chip benchmark, fell for the sixth straight day and ended the week down 4.3%, recording its lowest close since March 2016. China’s central bank announced Wednesday the creation of a new monetary tool intended to boost credit for small and private companies. The targeted medium-term lending facility permits domestic banks to borrow from the central bank more cheaply to extend loans to smaller companies. The new policy tool follows other efforts by the central bank to stimulate growth, which had been slowing prior to the onset of the trade rift with the U.S.
The central bank has cut reserve requirement ratios—the level of cash that banks must hold as reserves—four times this year. In 2017, China’s economy expanded 6.9%. The government has set an economic growth target of 6.5% this year. However, current U.S. tariffs will likely shave 0.5% to 0.7% from the 2018 growth rate, according to analysts. China’s slowdown, exacerbated by the U.S. trade battle, could have far-reaching repercussions for the global economy. Chipmakers and other technology suppliers may get hit from tariff uncertainty, supply chain restrictions, and possible sanctions. If China were to fall into recession, oil and metals would come under renewed pressure since no other country would be able to supplant China as the world’s top commodity consumer, they add.
Source: G&T
