Japan's Nikkei share average edged down on Tuesday on soft manufacturing data from China and the United States, prompting investors to rotate out of cyclical shares to defensive shares such as drugmakers.
Japan’s Nikkei share average edged down on Tuesday on soft manufacturing data from China and the United States, prompting investors to rotate out of cyclical shares to defensive shares such as drugmakers.
Suppliers to Apple Inc tumbled as the tech giant’s shares hit six-month lows, continuing a downward trend in place since its earnings two weeks ago. TDK Corp fell 4.7 percent while Taiyo Yuden fell 3.6 percent.
Manufacturing conditions in China deteriorated to their worst in two years in July, data showed on Monday, triggering fresh slides in global commodity prices.
“When the Chinese economy is slowing down, there will be a fairly big impact on the production of durable goods. Investors are trying to gauge the impact as there is no evidence of that in the data yet,” said Tetsuro Ii, president of Commons Asset Management.
The benchmark average fell as much as 0.5 percent and last stood at 20,534.80, down 0.1 percent. The broader Topix was almost flat at 1,658.80.
Companies with heavy exposure to China, as well as oil and other commodities stocks came under pressure.
Earth-moving equipment companies fell, with Hitachi Construction Machinery losing 2.8 percent while Komatsu Ltd dropped 2.5 percent. Plant builder Chiyoda Corp slid 3.2 percent.
But the defensive shares were in favour despite relatively high valuations. Overall the drug sector rose 1.9 percent. Shionogi & Co climbed 3.3 percent and Takeda Pharmaceutical gained 2.2 percent.
The sector was the second-best performer among the Tokyo Stock Exchange’s 33 industry subindexes. Airlines, which benefit from falls in oil prices, were the best with Japan Airlines rising 3.4 percent to a record high while ANA gained 2.5 percent to a six-year high. Both firms have also been helped by a rising number of foreign tourists visiting Japan.
A key market focus will be the U.S. employment report due on Friday, which could sway market views on whether the U.S. Federal Reserve will raise interest rates in September.
“If we get some certainty about the strength of the U.S. economy and the likelihood of policy normalization by the Fed, and if a rate hike seems justifiable, that is positive for sentiment for global risk-on because a lot of people have been bracing for this,” said Stefan Worrall, director of cash equities at Credit Suisse.