Nikkei falls to 2-month low on Syria concerns, rising yen

Tue Aug 27, 2013 9:20pm EDT

* All subsectors except for mining fall in broad selloff
    * Short-term hedge funds main sellers - fund manager
    * Nikkei not far from entering bear market territory

    By Ayai Tomisawa
    TOKYO, Aug 28 (Reuters) - Japan's Nikkei share average
tumbled to a two-month low on Wednesday, extending its losses
into a third day on geopolitical uncertainty over a possible
U.S.-led military strike against the Syrian government, while
persistent concerns about a slide in emerging markets added to
the dour mood.    
    The Nikkei dropped 2.1 percent to 13,264.50 in
mid-morning trade, breaching its immediate support line of
13,270.72, a 23.6 percent retracement of the slide from its May
high to its low in June.
    "Short-term hedge funds are the main sellers. They were long
on the dollars and stocks, but they are reversing their
positions," a fund manager at a Japanese asset management firm
said.
    "Selling from this particular news (on Syria) should be
short-lived. But if emerging countries' weakness eventually
becomes big enough to hurt global companies' earnings and their
economies, long-term investors will follow suit, and the Nikkei
may enter a bear market," he said.
    The Nikkei hit a low of 13,210.84 earlier in the morning,
the lowest since June 27 and was down 17 percent from its May
peak. The benchmark will enter a bear market if it slides to
12,754, or down 20 percent from the 5-1/2 year high reached on
May 23.
    Selling was broad-based, with exporters leading the declines
on the back of a rising yen as the geopolitical uncertainty
prompted investors to pile into the safe-haven Japanese
currency.
    Toyota Motor Corp dropped 2.4 percent and was the
second most traded stock, Honda Motor Co fell 2.8
percent and Sony Corp slid 3.1 percent.
    The dollar last traded down 1.5 percent against the yen at
97.04 yen, not far from a one-week low of 96.97 yen
reached earlier.
    A strong yen hurts Japanese exporters' competitiveness
overseas as well as their dollar earnings when repatriated. 
    Commodity stocks bucked the market on the back of rising oil
futures.
    Inpex Corp gained 1.2 percent and Japan Petroleum
Exploration advanced 0.8 percent.
    The Topix dropped 2.1 percent to 1,110.44. All 33 of
the Topix's subsectors except for the mining sector were in
negative territory.
    Adding to the sombre mood is the continued slide in emerging
market currencies, said Yutaka Miura, a senior technical analyst
at Mizuho Securities.
    "Short-term investors may sell futures if emerging markets'
performances are bad. We need to monitor the yen's level as
well, and we need to be bracing for volatility amid thin
volume," Miura added.
    On Tuesday, emerging market currencies such as the Turkish
lira and the Indian rupee hit record lows as doubts over the
Syrian situation added to pressure from investors' bracing for
an end to the supply of cheap dollars from the U.S. Federal
Reserve's monetary stimulus.
    Western powers told the Syrian opposition to expect a strike
against President Bashar al-Assad's forces within days,
according to sources who attended a meeting between envoys and
the Syrian National Coalition in Istanbul. 
    Washington said on Monday it believed the Syrian president
was responsible for a chemical weapons attack on civilians last
week.
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