Tokyo troubles hit Europe markets

BBC
Jan. 18, 2006

European markets have seen sharp falls as investors took fright at the abrupt closure of the Tokyo exchange and poor results from major US firms.

In morning trading, benchmark share indexes in London, Paris and Frankfurt fell by 1% or more, with surging oil prices also weighing down stocks.

Earlier, the Tokyo exchange closed 20 minutes early as a rush of selling threatened a system meltdown.

Japan's benchmark Nikkei index has now fallen more than 6% in two days.

The heavy selling was sparked by allegations of fraud at internet firm Livedoor.

Among the main victims in Europe were German chip maker Infineon and French-Italian rival STMicroelectronics, both down about 3% after US market leader Intel posted fourth-quarter profits that fell short of expectations.

"Volatile" Nikkei index

Poor figures from US technology giants IBM and Yahoo also added to concerns that many companies had entered 2006 with unrealistic earnings forecasts.

Wall Street was expected to open sharply lower later on Wednesday following the series of poor company results.

Some market watchers have suggested that world markets were due for a readjustment after the extended run of gains seen in the last quarter of 2005.

They say equity investors are beginning to reappraise the markets on the basis of more stable oil prices, slower economic growth in the US and Europe and lower corporate earnings.

"I am very sanguine about the events in Tokyo," said Jeremy Batstone, head of private client research at Charles Stanley.

"The raids by Japanese prosecutors are a sign of strength, while a pullback in the Nikkei was inevitable after the gains it saw last year.

"It is quite a volatile index anyway," he added.

David Buik of Cantor Index agreed that the Livedoor investigation was a "trigger" but not the only reason for the sharp fall in Japanese markets.

"Tokyo had rallied 25% in 4 months - too much by any standards."

In light of Wednesday's early closure, the Tokyo Stock Exchange has said it will now shorten trading by 30 minutes a day until further notice.

Analysts said Tokyo's early closure would damage the image of the world's second-largest exchange, which has plans to list its own shares.

Japanese Prime Minister Junichiro Koizumi said that the chaos in Japan's markets would not last.

"I believe it is temporary because I think the general situation of the economy is solid," Koizumi said.

'Selling pressure'

Prosecutors raided the Tokyo offices of Livedoor on Monday, following allegations the company had violated Japanese securities laws.

Bosses at Livedoor denied the company broke market rules by giving misleading information to shareholders, but shares in the company dived on Tuesday, dragging the overall index lower.

One of Japan's best known internet companies, Livedoor has grown rapidly through a series of takeovers and stock splits into a group with a value of about 730bn yen ($6.3bn; £3.6bn) before the scandal erupted.

Its boss, outspoken entrepreneur Takafumi Horie, is a well-known personality in Japan.

The 33-year-old shot to fame following separate failed attempts to buy a TV company and a baseball team.

"Until the investigation on Livedoor and the fate of the company becomes clear, selling pressure on the overall Tokyo stock market will likely stay," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities.