By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) -- Japanese shares beat a sharp retreat
after opening comfortably higher on Friday, with a wave of selling
ahead of weekend elections in the country also dragging on other
regional markets.
The Nikkei Stock Average ended 1.5% lower after witnessing
extreme volatility during the session. The benchmark rose nearly 1%
in the morning session before suffering heavy losses that dragged
the benchmark down to a loss of 2.7% at one point, which traders
attributed to selling in the futures market but not related to any
particular news.
"It's just positioning. ... The market was long, and the Nikkei
Stock Average has failed to break significantly higher despite the
fact that the S&P 500 breached its May highs. ... [For
traders], if you don't like the move, you get out," said Ben
Collett, head of Asian equities at Sunrise Brokers.
"There was no smoking gun that we could see, although looking at
volumes in the futures market in the two hours when we saw the cash
market fall, 55,800 contracts were traded, which is huge, given the
average for each whole day has been 54,000 contracts," said Chris
Weston, chief market strategist at IG Markets.
Elsewhere in the region, Australia's S&P/ASX 200 lost 0.4%
and South Korea's Kospi ended 0.2% lower.
Hong Kong's Hang Seng Index was marginally lower, while the
Shanghai Composite gave up 1.2% with losses accelerating in the
afternoon session.
The volatility in Tokyo came ahead of the country's upper house
elections this weekend, in which the ruling Liberal Democratic
Party is expected to easily clinch a majority.
The LDP already has a majority in the lower house of the
parliament, and a majority in the upper chamber of the Diet was
widely expected to strengthen Prime Minister Shinzo Abe's
government in its attempt to revive the Japanese economy.
However, "it will not be plane sailing once the voting is out of
the way. The politicians could be forgiven for putting off
difficult decisions until after the elections, but hard choices
will have to be made soon to maintain the markets' confidence,"
Capital Economics wrote in a report.
Regional markets began the day on a positive note after the Dow
Jones Industrial Average (DJI) and the Standard & Poor's 500
Index (SPX) ended at record highs Thursday on Wall Street.
Those gains came after the second day of congressional testimony
from Federal Reserve Chairman Bernanke and some upbeat earnings
results, including from Morgan Stanley (MS). Moody's Investors
Service also lifted its outlook on U.S. credit ratings to stable,
while reaffirming the country's AAA sovereign rating.
Stocks across sectors were affected by the volatility in Tokyo
trading. Shares of Tokyo Electron Ltd. (TOELY) slumped 5.7%, Tokyo
Electric Power Co. (TKECY) sank 1.2%, and Isuzu Motors Ltd. (ISUZY)
fell 2.1%, with each of them reversing early gains.
Sharp Corp. (SHCAY) came off early highs but ended up 0.9% after
the Nikkei newspaper reported it was considering raising funds via
a private placement to Lixil Group Corp. and Makita Corp. .
Shares of Lixil added 0.8%, and Makita fell 2.4%.
Hong Kong shares were supported as heavyweight stock HSBC
Holdings PLC (HBC) rose 0.9% after the higher finish on Wall
Street.
But Chinese property developers suffered big losses, with China
Overseas Land & Investment Ltd. (CAOVY) sliding 2.8% and
Beijing North Star Co. sliding 3.5% in Hong Kong. On mainland
Chinese bourses, Poly Real Estate Group Co. skidded 5.4% in
Shanghai and the yuan-denominated A-shares of China Vanke Co. also
fell 5.4% in Shenzhen.
Santos Ltd. fell 3.7% after reporting a decline in production
and cutting forecasts for oil and gas output.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires