Japan's Nikkei 225 rebounds as economic concerns ease

A investor gazes at a share prices board in Tokyo Japanese companies saw their valuations drop over the past two days because of the massive sell-off
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Japan Earthquake

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Japanese stocks rebounded on Wednesday as concerns over the long-term economic impact of Friday's earthquake and tsunami eased.

The Nikkei 225 gained 5.7% to close at 9,093.72 points.

The index had dropped more than 16% on Monday and Tuesday in its biggest two-day fall for 23 years.

European markets also held steady at the start of trading, with companies previously hit by nuclear or supply chain fears rebounding.
Bargain-hunting

Germany's Dax index was Europe's best performer, rising 1%, led by utility firms E.On and RWE.

The two had been hit on Tuesday by fears of a German clampdown on the nuclear power industry in response to the continuing leakage at the Fukushima Daiichi plant in Japan.

Technology company Infineon also rose strongly, as did carmakers across Europe, as fears over damage to their Japanese supply chains eased.
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“Start Quote

Once the nuclear plant problem is cleared out of the way, the market will go back to the level from before that panic sell-off”

End Quote Makoto Kikuchi Myojo Asset Management

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Earlier in Tokyo, stocks of financial companies, exporters and car companies were among the biggest gainers, as investors hunted for bargains following Tuesday's rushed sell-off.

These sectors and stocks were among the hardest hit in the sell-off following the earthquake and tsunami.

Taking a cue from Nikkei's strong rebound, other markets in the region registered gains as well.

Seoul's main Kospi index rose 1.8%, while Australian shares ended the day 0.7% higher.
'Oversold'

Japanese shares had tumbled in the aftermath of the disaster, with some of the biggest companies seeing their market values plunging.

"The market in general understands that Japanese shares are oversold," said Kazuhiro Takahashi of Daiwa Securities Capital Markets in Tokyo.

While concerns remain about the impact of the devastation on Japan's economy, analysts say stocks of companies which are not fully dependent on domestic demand are priced attractively.

"Once the nuclear plant problem is cleared out of the way, the market will go back to the level from before that panic sell-off," said Makoto Kikuchi of Myojo Asset Management.
Short selling

While there is optimism about the economic recovery, many analysts believe there are other factors to consider.

"The rebound is pretty strong as investors realised they may have panicked a bit too much [on Tuesday]," said Fujio Ando of Chibagin Asset Management.

Mr Ando also believes that the markets may be distorted as traders try to cover bets they took that the market will continue to fall.

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Fears hang over Tokyo markets

Many traders borrow shares they do not own, promising to repay them at a later date at a fixed price.

They then sell the shares, hoping to buy them back at a cheaper price in a falling market, thus making a profit on the difference, a practice called short-selling.

"It's mostly short covering by both domestic and foreign players, and not honest, active buying, because nuclear worries are still strong," Mr Ando said.
'Extremely volatile'

Investors were optimistic about a recovery despite reports of another fire at the Fukushima Daiichi nuclear plant.

A spike in radiation levels at the Fukushima nuclear plant had forced workers to suspend their operation, according to a government spokesman.

Analysts have warned that developments at the plant will have an impact on the markets.

"The market is still extremely volatile," said Norihiro Fujito of Mitsubishi UFJ Morgan Stanley Securities.

"All eyes are on the nuclear plant and the Nikkei will move according to the news about the plant," he added.

There have been concerns about a meltdown at the plant after it was hit by explosions.

The reactor was the worst hit by the earthquake in Japan.