Japan’s contraction weighs on Asian markets

News of Japan’s biggest economic contraction for 35 years sent stock markets lower across most of Asia Pacific on Monday. The Nikkei in Tokyo dropped 0.4 per cent, South Korean shares dropped 1.4 per cent and the Australian market declined by 1.2 per cent. Indian shares were down 3 per cent late in the trading day in Mumbai.

The financial, energy and materials sectors made the biggest losses.

Among major economies, only mainland China shares showed a big gain. The Shanghai composite rose 3 per cent, meaning it has rallied by 31.2 per cent so far this year.

In Tokyo, the Nikkei 225 average closed 0.4 per cent lower at 7,750.17 and the broader Topix index ended 0.7 per cent higher at 770.10.

It was the third consecutive quarter that the world’s second-biggest economy, got smaller.

A slowdown in exports as the world economy slowed and the yen continued to appreciate meant Japan’s economic output shrank by 3.3 per cent in the last quarter of 2008, compared with the previous three months

The yen appreciated by 0.3 per cent to Y91.64 against the dollar, adding to the problems of exporters, for whom a stronger yen means their goods are potentially more expensive abroad.

Honda Motor fell by 1.6 per cent to Y2,200, Canon lost 1.2 per cent to Y2,415 and Sony declined 1.3 per cent to Y1,699. Pioneer Electronics, which last year said it would make a record annual loss, fell by 8.5 per cent to Y130.

Chip makers and technology companies made some of the biggest losses. Elpida Memory fell by 6.1 per cent to Y658, TDK dropped 4.9 per cent to Y3,510 and Advantest, a big maker of chip-testing equipment, fell by 3.4 per cent to Y1,351.

Domestically focused defensive stocks did better. The pharmaceutical company Daiichi Sankyo rose by 3.6 per cent to Y2,040 and East Japan Railway rose by 4.2 per cent to Y5,920. However, Fast Retailing, which operates the Uniqlo chain of discount clothes shops, fell by 4.3 per cent to Y10,650.

Nippon Paper gained 1.2 per cent to Y,2590 after saying it would buy Australian Paper from its parent PaperlinX for A$600m.

In Australia, Commonwealth Bank of Australia fell by 2.1 per cent to A$29.62 to lead 1.2 per cent decline in the S&P/ASX 200 index to 3,516.90. The world’s biggest mining company, BHP Billiton, the world’s biggest miner, fell by 1.7 per cent to A$32.14.

Brambles, which owns pallets and shipping containers, fell by 11.7 per cent to A$5.65 after saying profit dropped sharply in the first half of the year. The company said it would scale back its US operations and that 750 jobs would go.

On in mainland China, the Shanghai composite index closed 3 per cent higher at 2,389.39. The market has gained 31.2 per cent so far this year as share prices benefit from the optimism generated by government plans to support industries.

In contrast, the Hang Seng index closed 0.7 per cent lower at 13,455.88 and the main sub-index of mainland companies listed in the territory was 0.1 per cent lower at 7,560.55

China’s financial sector led Monday’s rally in Shanghai. Volumes of shares traded have doubled since the beginning of the year, which has helped stock brokers. Haitong Securities rose by 4.2 per cent to Rmb14.49 and Citic Securities, gained 4.2 per cent to Rmb26.47

Airlines benefited from statistics showing the biggest increase in passenger numbers in January for more than a year that were published on Friday. China Southern Airlines rose by 9.6 per cent to Rmb5.02 and Air China gained 5.9 per cent to Rmb5.70.

Elsewhere in the region, Singapore Airlines fell by 1.5 per cent to S$10.44. It said it would cut remove 17 passenger planes from service as demand for flights plummeted. Korean Air fell by 4.1 per cent to Won37,000. In Seoul, the Kospi closed 1.4 per cent lower at 1,175.47.