Asia Stocks Swing Between Gains, Losses on Policy Concern – Bloomberg

Asian stocks sank, with the regional
benchmark index headed for the biggest drop since November 2011,
as Japanese shares plummeted after China’s manufacturing output
unexpectedly contracted and the yen strengthened.

Futures trading in Osaka was suspended as Japan’s Nikkei
225 Stock Average and the broader Topix Index both fell as much
as 6 percent, the most since the aftermath of the 2011
earthquake. Jiangxi Copper Co. (358), China’s biggest producer of the
metal dropped 3.3 percent in Hong Kong. Toyota Motor Corp. fell
4.1 percent in Tokyo, pacing declines among the region’s
exporters amid speculation the Federal Reserve may soon wind
back stimulus.

The MSCI Asia Pacific Index declined 3.1 percent to 139 as
of 2:45 p.m. in Tokyo, with more than eight shares falling for
each that rose. The measure surged 11 percent this year through
yesterday as Japanese shares rallied as the Bank of Japan
stepped up stimulus efforts and the U.S. economy improved. Fed
Chairman Ben S. Bernanke said yesterday a premature withdrawal
of quantitative easing would put the U.S. economic recovery at
risk.

“The market has been looking for an excuse for a
correction,” said Shane Oliver, Sydney-based head of investment
strategy at AMP Capital Investors Ltd., which oversees $126
billion. “Bernanke’s comments and China’s PMI data provided the
trigger for a sell-off. Technically, Japanese shares have been
overbought and were vulnerable for a correction.”

Trading Suspended

Futures trading in Osaka was halted at 14,780 yen at 2:28
p.m. in Tokyo as circuit-breakers were triggered, Yoshifumi
Hanatani, an official at the Osaka Exchange, said by phone. It
is the first time trading of the contracts have been halted
since March 15, 2011.

Japan’s Nikkei 225 (NKY) and Topix headed for their biggest daily
drop since March 15, 2011, the immediate aftermath of the 2011
earthquake, tsunami and nuclear disaster. The Nikkei pared its
losses to 4.7 percent and the Topix to 5.1 percent at 2:50 p.m.
in Tokyo. Both gauges were up about 50 percent this year through
yesterday.

The 14-day relative strength index, a measure of trading
momentum, has held above 70 for both gauges for the past nine
days. That level is considered by some traders as a signal to
sell as the market has risen too fast.

The Nikkei Volatility Index jumped 36 percent to 37.47,
heading for the highest level since October 2011, according to
data compiled by Bloomberg. The 50-day volatility for the Topix
climbed to 25.93, poised for the highest since May 2011, the
data showed.

‘Great Rotation’

The plunge in stocks is “because of the decline in market
sentiment from China,” said Tsutomu Yamada, a Tokyo-based
analyst at Kabu.com Securities Co. “The theory of the ‘Great
Rotation’ was used as a reason to sell bond futures and buy
stock futures, which happened at an amazing pace, but now it
seems that has gone too far. With long-term rates at 1 percent
and the Nikkei 225 near 16,000, both feel like they have hit
their targets for now. The reaction has been to unwind those
moves.”

Hong Kong’s Hang Seng Index (HSI) dropped 2.1 percent, while
China’s Shanghai Composite Index lost 0.3 percent. South Korea’s
Kospi Index (KOSPI) decreased 1 percent. Australia’s S&P/ASX 200 Index
slid 1.9 percent, while New Zealand’s NZX 50 Index fell 0.5
percent.

China’s manufacturing is contracting in May for the first
time in seven months, adding to signs that economic growth is
losing steam for a second quarter. The preliminary reading of
49.6 for a Purchasing Managers’ Index released today by HSBC
Holdings Plc and Markit Economics compares with a final 50.4 for
April. The number was also below the 50.4 median estimate in a
Bloomberg News survey of 13 analysts. A reading above 50
indicates expansion.

To contact the reporter on this story:
Jonathan Burgos in Singapore at
jburgos4@bloomberg.net

To contact the editor responsible for this story:
Nick Gentle at
ngentle2@bloomberg.net