Equities hit by fears Greece will quit eurozone

Japan’s Nikkei 225 has just suffered its longest weekly losing streak for 20 years, as fears of a potential Greek exit from the eurozone outweigh the market’s fundamentals.

The Nikkei stock average ended last week down by 0.4%, marking a decline for eight consecutive weeks. Since the index’s one-year peak on March 27, the Nikkei has dropped 16%.

Japanese equities have not benefited from signs of strength in the world’s third largest economy. Official figures say the economy grew by 1% in the first quarter of the year, while the reconstruction spending after last year’s earthquake is likely to support activity for the foreseeable future.

The Bank of Japan has shown a willingness to intervene in currency markets to stop the yen from strengthening too much and the country recently returned to inflationary conditions. (article continues below)

Robert Burdett, the co-head of multi-manager at Thames River, says: “The bad news is Japan as a market still seems to be the whipping boy when global growth is questioned. When there are short-term macro or political worries, the fundamentals don’t seem to count for much.”

Last week was dominated by fears that Greece will leave the eurozone in the months ahead, leading to falls in the value of stockmarkets across the globe, with Japan seeming to bear the brunt.

Burdett says corporate Japan appears to be “doing the right things” and offers good value. However, he warns a return to growth is by no means assured in the near term.

“Many people think the long-term key to Japanese equity market recovery is domestic investors getting involved [but] none of the managers I have spoken to this week see that happening soon,” he says.

“All we can hope for is Westerners who dominate the flows in and out change their minds.”