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Jul 6, 2016

Asian Markets at Close Report on July 6, 2016: Nikkei tumbles as yen strengthens on Brexit uncertainty

Japanese stocks tumbled Wednesday, leading stock markets across the region sharply lower as a fresh bout of anxiety over Brexit risks rattled investors.

Japan’s Nikkei Stock Average NIK, -1.85%  sank 1.9% as the yen continued its strengthening trend. Elsewhere, Australia’s S&P/ASX 200 XJO, -0.58%  fell 0.6%, South Korea’s Kospi SEU, -1.85%   dropped 1.9% and Hong Kong’s Hang Seng IndexHSI, -1.23%  lost 1.2%. China’s Shanghai Composite Index SHCOMP, +0.36%however, rose 0.4%.
The pound’s GBPUSD, -0.3609%  slump to a 31-year low overnight and comments from the Bank of England renewed worries about prolonged uncertainty in Europe. BOE Governor Mark Carney said Tuesday the central bank wouldn’t be able to completely mitigate economic pain, and that sent investors to the yen, the perceived haven in Asia.
Investors buy Japan’s currency during times of market turmoil, but a strong currency chips away at the value of the repatriated income of Japanese exporters, so investors dump shares on expectations of lower earnings. The yen USDJPY, -1.41% was recently trading at 100.75 to the U.S. dollar.
“The stronger yen is obviously hurting Japan, so Japan [stocks are] crumbling,” said Andrew Clarke, director of trading at Hong Kong-based brokerage firm Mirabaud Asia.
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As markets slide, big banks are oversold
Sure, there are many reasons to worry about Goldman, JPMorgan, and other big financial institutions, but all that bad news is priced in.
Shares of Japanese banks and exporters were hit hard. Shinsei Bank 8303, -3.55% was down 3.6%, Mitsubishi UFJ Financial Group 8306, -3.60%  dropped 3.6%, and Nissan Motor 7201, -2.01%  lost 2%.
An overnight decline in Brent crude oil LCOU6, -1.40%  prices also pounded energy shares across the region. In Australia, Woodside Petroleum WPL, -0.64%  fell 0.6%, and Oil Search OSH, -1.16%  fell 1.2%. In Hong Kong, shares of Chinese state-owned firm Sinopec 0338, -0.85%  lost 0.9%, and Cnooc 0883, -1.04%  slumped 1%.
Chinese gold shares were among the day’s few winners. Zhongjin Gold Corp.600489, +10.09%  jumped 10%.
In other markets, investors continued their hunt for yield in longer-dated bonds. The yield on Japan’s latest 20-year note TMBMKJP-20Y, -31.62%  hit an all-time low of minus-0.005% in Tokyo trading, touching negative territory for the first time.
The yield on Japan’s 10-year government bond TMBMKJP-10Y, -10.38%  hovered at minus-0.269%, while the yield on Australia’s 10-year bond TMBMKAU-10Y, -3.99% fell to 1.861%, both historical lows. Bond yields fall as their prices rise.
“People are really looking everywhere and anywhere for potential yield,” Clarke said.
Meanwhile, an anomaly emerged in the iron-ore market. Prices rose even though the supply of the metal increased. The spot value of iron ore is up more than 10% since the start of June, while the inventory of imported ore at China’s ports is at an 18-month high.