Japan stocks now wilder than Shanghai's as volatility soars

HONG KONG (BLOOMBERG) - For the first time this year, Japan's stock market is wilder than China's.

As the Topix index plunged 16 per cent from mid-August through Tuesday, short-term volatility jumped to the highest since the aftermath of the 2011 earthquake. The Japan equity measure then soared 6.4 per cent on Wednesday, making its price swings more exaggerated than those on the Shanghai Composite Index for the first time since December, data compiled by Bloomberg show.

"As it continues to be more volatile, gradually some investors and traders will move to the sidelines to sit back and watch because they view the markets as too dangerous," said Andrew Clarke, director of trading at Hong Kong brokerage Mirabaud Asia Ltd. "And they are correct - just lately Asian markets, especially China, Hong Kong and Japan, have been behaving like casinos."

For most of the year, Japanese equity investors enjoyed market calm as corporate-governance improvements and a decoupling of stocks from the yen helped the Topix to an eight- year high. Then China's unexpected yuan devaluation on Aug 10 spurred a global selloff and upended investment strategies in Tokyo: the correlation between Japan's equities and currency has soared, while the Topix has been among the world's worst performing stock measures.

The Japanese gauge slid 2.4 per cent as of 2:10 pm in Tokyo Thursday. The Shanghai Composite lost 0.9 per cent, extending its decline from a June peak to 38 per cent.

The Shanghai gauge's 10-day volatility surged to the highest in almost two decades last month as investors speculated whether state buying would succeed in propping up the market. China's government spent 1.5 trillion yuan (S$334.1 billion) from June through August trying to stop the rout, according to Goldman Sachs.