History Points to Monthly Drop in August for Japan’s Stocks

(Bloomberg) -- Japan's equity investors may want to take that holiday this month, if history is any guide.

Foreigners were net sellers of Japanese stocks in August over the past nine years, according to Japan Exchange Group figures. That's helped dragged the Topix index lower for the month in eight out of nine times.

Those are bad signs for a market already facing negative factors ranging from an impending sales tax hike to spreading trade tensions, said Seiichi Miura, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.

“There are a lot of incentives to sell Japanese stocks,” Miura said. “It's not surprising that foreign investors may unload shares to increase cash.”

While U.S. equities are hovering near record highs, some investors may decide to take profit before they head off for vacation now that the Federal Reserve's July meeting is over, according to Miura. Overseas investors turned bearish on Japanese stocks this summer, with the world's largest money manager, BlackRock Inc., and Singapore's biggest bank, DBS Group Holdings Ltd., lowering their weightings on the country's shares.

On the domestic front, concerns over a slowdown in spending resulting from a planned sales-tax increase in October will provide an additional incentive to sell stocks, Miura said. The last time the sales tax was raised in April 2014, Japanese shares posted monthly declines in January, February and March.

“A sales tax increase isn't going to be good for the economy,” said Hajime Sakai, chief fund manager at Mito Securities in Tokyo. “Investors may hold off buying shares.”

MUFJ-MS's Miura added that overseas investors may shift some money from stocks to cash if Japan's corporate earnings are hurt by a slowdown in China's economy. The ongoing trade spat between the U.S. and China has already crimped earnings at companies including Komatsu Ltd. and Keyence Corp.

“What is often said in the stock market is that it reacts to either good or bad news two to three months in advance,” Miura said. With Japan's upcoming tax hike, the trade war and the passing of the Fed's meeting, “there could be selling around August and September,” he said.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net;Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Naoto Hosoda, Teo Chian Wei

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