Nikkei Tops China, India After Longest Rout Since '65

By Masaki Kondo and Makiko Kitamura

July 3 (Bloomberg) -- The Nikkei 225 Stock Average's longest losing streak in 43 years belies its top performance among Asia's biggest equity markets as investors bet the end of deflation will lift the economy and spur demand for equities.

The Nikkei fell yesterday for the 10th straight day, the longest stretch since March 1965, according to the Nikkei Inc. Web site. The index's 8.1 percent drop since June 18 pushed losses to 13 percent this year, less than the 22 percent slump in Hong Kong's Hang Seng Index, 33 percent drop in India's Sensitive Index and 49 percent plunge in China's CSI 300 Index.

Japanese stocks avoided the region's biggest losses as investors bet
consumers in the world's second-largest economy will spend more of their $7 trillion in savings accounts before price increases accelerate. Japan's inflation rate is less than a fifth of China and India, where record commodity costs may force central banks to raise interest rates and slow economic growth.

``Inflation would be good because it would drive institutions and individuals that are very heavily weighted to cash and bonds back into the equities and properties,'' said Marc Faber, founder and managing director of Marc Faber Ltd. in Hong Kong and publisher of the Gloom, Boom & Doom Report.

The Nikkei's longest losing streak was a 15-day stretch in 1954, according to Nikkei, which compiles the index. It would have had a 10-day drop in September-October 1974 if not for a gain during Saturday trading, which has since been discontinued.

The Nikkei opened lower today, and was down 9.19, or 0.1 percent, to 13,277.18 as of the midday trading break.

Growth Outlook

Japanese companies that rely on emerging markets have posted some of the biggest declines in the past 10 days, said Mitsushige Akino, who manages $557 million at Ichiyoshi Investment Management Co. in Tokyo.

Suzuki Motor Corp., which counts India as its biggest market, dropped 20 percent on increasing concern inflation will curb spending. Komatsu Ltd., which increased sales to China by 62 percent last year, plummeted 15 percent. Suzuki is located in Hamamatsu, Japan, while Komatsu is based in Tokyo.

Wholesale prices in India accelerated to 11.42 percent in the week to June 14, the fastest pace in 13 years, which may prompt the Reserve Bank of India to raise the benchmark interest rate, already at a six-year high.

China's inflation surged to an 8.7 percent rate in February, the highest since 1996 and may prompt the central bank to raise its key interest rates this week for the first time in 2008, according to economists surveyed by Bloomberg News.

2008 Gainers

Mitsubishi UFJ Nicos Co., a credit card unit of Japan's biggest bank by market value, and Fast Retailing Co., the operator of Japan's Uniqlo casual clothing store chain, were among the best stocks to own this year in the Nikkei. Mitsubishi UFJ Nicos, located in Tokyo, rose 37 percent to yesterday, while Yamaguchi City, Japan-based Fast Retailing added 23 percent.

Japanese stocks may rally as consumers spend more and shift money into higher-yielding assets, according to Faber.

``Japan in particular is well-placed as a safe-harbor investment destination,'' said Ed Rogers, chief executive officer of Tokyo-based Rogers Investment Advisors Y.K., which manages about $12 million. ``Japan is far less volatile than China and India.''

Core consumer prices, which exclude fresh food, rose for an eighth straight month in May, climbing to a decade-high of 1.5 percent. In the previous 10 years, prices in Japan fell at least one month in every year, according to data compiled by Bloomberg. The rate of inflation is still the lowest of any country in the world, the data show.

Inflation Concern

The Nikkei may rise to 14,050 by the end of the year, according to the median forecast of economists surveyed by Bloomberg between June 16 and June 20. That would be a gain of 5.7 percent from yesterday's closing price.

The 50 percent jump in crude oil prices to a record this year has helped GS Yuasa Corp. and Sanyo Electric Co., which make batteries for hybrid and electric cars. GS Yuasa, located in Kyoto, rose 85 percent, while Osaka-based Sanyo Electric gained 52 percent.

``Inflation is a major topic globally and environmental issues are directly related,'' said Hiroshi Chano, who helps manage $7.3 billion at Yasuda Asset Management Co. in Tokyo. ``Japan will demonstrate its new weapon, environmental technology. We could see money rush into Japan.''

To contact the reporter on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net.