Nikkei enters bear market to extend global rout; yen, bonds rally

The Japanese benchmark fell 5% on Tuesday, widening its drop to 21% from its October 2 peak

The Nikkei 225 Stock Average slid into a bear market, as a global equity rout continued unabated in the last week of the year, with renewed turmoil in Washington rattling investors. The yen and Japanese bonds rallied.
 
The Japanese benchmark fell 5 per cent on Tuesday, widening its drop to 21 percent from its October 2 peak, as it took its cue from the S&P 500’s worst trading session before the Christmas holiday. Chinese shares, the other major Asian market open on Tuesday, also declined as investors shrugged off a pledge by the government to do more to support companies.
 
Investors looking to Washington for signs of stability that might bolster confidence instead got further unnerved on Monday. President Donald Trump blasted the Federal Reserve, blaming the central bank for the three-month equity rout days after Bloomberg reported he inquired about firing the chairman, while Treasury Secretary Steven Mnuchin sought to assuage rising anxiety with a hastily-called meeting of top financial regulators.
 
“The Trump bubble, which has brought gains in U.S. stocks and the dollar, is collapsing,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co. in Tokyo. “The more stocks fall, the more investor sentiment gets worse, so there’s more people who need to sell temporarily, such as stop-loss selling.”
 
The tumult in Washington added to concerns of investors, who have seen equities worldwide tumble on concerns about a slowing US economy, the pace of rate hikes by the Federal Reserve and the ongoing trade war. The S&P 500 plunged almost 3 per cent to end at a 20-month low on Monday.
 
“It’s just like panic selling,” said Nobuhiko Kuramochi, head of investment information at Mizuho Securities Co. in Tokyo. “The equity markets are pricing in concerns over a slowdown in the global economy and a downward revision in corporate earnings in advance. Some investors are reducing their exposure to equities in their portfolio” by increasing cash or bonds.

 
Japan’s benchmark 10-year bond yield slipped to zero percent for the first time since September 2017, while the yen advanced for an eighth day as investors sought haven. Equities in Shanghai dropped, despite plans by policy makers to improve financing for the private sector and implement tax cuts. PetroChina Co. led the decline after crude fell below $45 a barrel.
 
Markets may be overreacting, Japan’s Finance Minister Taro Aso said, adding that he’s not overly worried. Still, an emergency margin call was triggered for the nation’s index futures.
 
Meanwhile, China stocks pared a sharp drop as state-backed funds were seen buying large caps in the afternoon.
 
Chinese shares slid in the morning along with equities in Japan.  "The gains by big banks and insurers suggest state buying, and some funds may also be bottom-fishing stocks," said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management Co.
 
Kang Chongli, a Beijing-based strategist with Lianxun Securities Co., said the 2,500 level "is both a policy and technical bottom" for the Shanghai Composite Index. The gauge ended the day at 2,504.82.

 
China’s "national team" of state-backed funds is frequently suspected of buying shares during turbulent times. Large caps like banks are among the most favored targets, and buying often comes in the afternoon so gains, or at least smaller losses, are locked in for the day. The funds were net buyers of bank stocks in the third quarter, UBS Securities Co. said in November. China’s stock benchmark is down 24 per cent this year, in line for the worst performance in a decade, as a trade dispute with the US escalated.
 
Agricultural Bank of China Ltd. added 0.9 per cent on Tuesday, erasing a drop of 0.6 per cent. Bank of China Ltd. rose 0.6 per cent, and Bank of Communications Co. rose 0.4 per cent. China Southern Airlines Co. rose 1.9 per cent as the best performer on the SSE 50 measure, erasing a slide of 1 per cent in the morning.
 
A subgauge of energy stocks was the worst performer among the CSI 300 Index’s 10 industry groups, falling 2.1 percent as crude fell to the lowest level in a year and a half.