Japan shares sink nearly 4% as pandemic fears grow

TOKYO, Feb 28 (Reuters) - Japanese shares plummeted in heavy
volume on Friday to their lowest in nearly six months as global
markets sold off on the rising possibility the coronavirus
outbreak would become a pandemic.
The benchmark Nikkei average .N225 tumbled 3.7% to
21,142.96, its lowest closing level since Sept. 5.
The index was down 9.6% for the week, the biggest in four
years. For the month, it was down 8.9% - the worst in 14 months.
Looking ahead, analysts say the Nikkei could be supported
around 20,700, where it will be traded on par with its book
value.
The Nikkei's volatility index .JNIV , a measure of
investors' volatility expectations based on option pricing,
spiked to as high as 42.85, its highest level since June 2016.
An increase in volatility prompts automatic selling by
"risk-parity" funds, which target a constant level of
volatility, as well as trend-chasing commodity trading advisers
(CTA), and often exacerbates turbulence in prices.
Analysts said such selling should already be happening,
since market saw volatility spikes over the past four trading
days.
The broader Topix .TOPX shed 3.7% to 1,510.87, its lowest
since early September, in very active trade, with the volume
hitting the heaviest since May 2018 at 4.13 billion shares,
partly due to MSCI's quarterly index rebalance.
In a sign of broad-based selling, all of the 33 sector
sub-indexes on the Tokyo Stock Exchange were trading lower, with
real estate .IRLTY.T , information and communication .ICOMS.T
and fish and forestry .IFISHT being the worst three
performers.
Semiconductor-related and other cyclical shares were hit
hard, with Tokyo Electron Ltd 8035.T and Screen Holdings Co
Ltd 7735.T declining 5.5% and 5.0%, respectively.
Blue-chip automakers Toyota Motor Co 7203.T shed 3.5% and
Honda Motor Co Ltd 7261.T lost 4.3%.
Electronic parts makers Murata Manufacturing Co Ltd 6981.T
and TDK Corp 6762.T dropped 4.8% and 4.0%, respectively.
"The coronavirus now looks like a pandemic. Markets can cope
even if there is big risk as long as we can see the end of the
tunnel," said Norihiro Fujito, chief investment strategist at
Mitsubishi UFJ Morgan Stanley Securities.
"But at the moment, no one can tell how long this will last
and how severe it will get."
World Health Organization Director General Tedros Adhanom
Ghebreyesus said the virus could become a pandemic as the
outbreak spreads to major developed economies such as Germany
and France.
Elsewhere, the index of Mothers start-up shares .MTHR
plunged 6.3% to hit a fresh 4-year trough.