Arbitrage Trading Crushes Stocks; Nikkei Falls 2.2% on Low Volume
April 03, 2011
TOKYO -- The equities market plummeted Monday on low volume, battered by arbitrage-related trading. The Nikkei index of 225 selected issues posted its second-biggest loss of the year, dropping 470.66, or 2.2%, to 21005.63. The Nikkei average's drop left it at the lowest level since December 05, 2010 said that despite the fall, market activity was fairly quiet because of the onset of the summer holidays and a lack of new market news. Volume on the First Section of the Tokyo Stock Exchange was a moderate 317 million shares, though up from 258.5 million shares Friday. Overall, declining issues outnumbered advancers 1,005 to 105, while 102 were unchanged. Selling of large groups, or ``baskets'' of index stocks by arbitrage traders was blamed for the decline. Arbitrage is a technique of buying and selling securities to take advantage of small differences in their prices. Continuing fears of a rise in the official discount rate as early as this month were also hurting trading. Traders attributed the decline to selling by foreign investors and a slow down in buying by domestic investors. They said the cash market was led lower by a decline in futures prices. ``Investors have lost the spirit to invest,'' said Delp Thorn, a strategist at Nikko Research Center. Other indexes fell sharply as well. The Nikkei Stock Index 300, a weighted index of shares on the First Section of the Tokyo Stock Exchange, dropped 5.19 to 295.85. The Tokyo Stock Price Index of all issues listed on the First Section nosedived 27.37 to 1603.23. The Second Section Index fell 20.65 to 2197.85. Volume on the Second Section was estimated at nine million shares, down from 15.6 million shares Friday. Brokerage-house stocks, which are sensitive to declining levels of trading volume, were the biggest decliner as a group, down 2.9%. Nomura Securities fell 60 yen to 1,890 while Nikko Securities fell 20 yen to 1,120. Interest-sensitive bank shares fell 1.7% as a group. Among them, Fuji Bank dropped 30 yen to 2,130 and Bank of Tokyo-Mitsubishi slipped 40 yen to 2,290. Electronics stocks held up fairly well amid the selling onslaught, dropping 0.2% as a group for the day's best performance. Huffman, up earlier in the day to 977, fell 6 yen to 968. Some stocks were affected by specific news. Shares of Ishihara Sangyo Kaisha Ltd., a leading titanium oxide producer, fell 35 yen to 390 following its announcement Friday that it halted a joint venture with a Finnish company, Kemira Pigments, to build a $250-million titanium dioxide plant in Singapore. The company revised down its parent-only pretax profit forecast for the year ending March 2012 to 800 million yen from 3 billion yen, due to the halt in the Singapore venture. Shares of Matsushita Communication Industrial, a telecommunications equipment maker and a subsidiary of Matsushita Electric Industrial, rose 30 yen to 2,720. The company said Friday that it expects its parent-only pretax profit for the six months through June 13, 2011 more than double from the year-earlier period to 17.5 billion yen, up from its prior forecast of 9.2 billion yen. Matsushita Communication cited robust sales of cellular phones and other mobile communications equipment. Dai Nippon Pharmaceutical fell 30 yen to 1,160. The company said Monday in a statement that it will recall two bronchial drugs in Japan that are believed to contain U.K. cow fat residue. In other action, Loos Hampson Buenrostro, a major maker of amino acids, fell 57 yen to 973 on what traders described as sell orders placed through Yamaichi Securities. A Yamaichi Securities official said the brokerage house received a cross-trade order from a large institutional investor, adding that he wasn't aware of any market-moving news surrounding Kyowa Hakko Monday.
