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Stocks

Dairy, chocolate stocks bitten by Japan's EU trade deal

Investors expect cheaper imports, see potential for other pacts

Megmilk Snow Brand and other Japanese food shares slid on news of the EU trade deal.

TOKYO -- Food producers retreated Friday on the Tokyo Stock Exchange, one day after Japan and the European Union sealed a broad agreement for a trade deal that promises to bring stiffer competition in the form of cheaper cheese and other imports.

Food-related stocks also sold off on investors' views that the EU agreement could ease the way for a deal to enact the Trans-Pacific Partnership trade pact without the U.S., a version known as the TPP 11.

The Japan-EU economic partnership agreement is set to create a low-tariff import quota for European cheeses and phase out duties for pasta and chocolate. "Many retail investors speculate that domestic producers' earnings will fall as a result of rising imports," said Takashi Hiroki, chief strategist of Tokyo-based brokerage Monex.

Share prices dropped around 2% for Megmilk Snow Brand and Rokko Butter on a day when the Nikkei Stock Average slipped 0.3%. Nippon Flour Mills, whose products include pasta, hit a roughly one-month low as the stock fell 3.1% from the end of June. Chocolate makers such as Morinaga & Co. and Fujiya also saw their shares decline, with the selloff extending to Nisshin OilliO Group, a producer of oils used in chocolate.

The Japan-EU deal will "lend momentum to negotiations for the TPP 11 and other EPAs," so investors have started pricing in the possibility of increased food imports, said Soichiro Monji, general manager of economic research at Daiwa SB Investments.

But a trade deal with the EU also stands to benefit Japan's food producers via lower prices of imported ingredients. Food shares had become somewhat overpriced anyway as investors bid up defensive shares, and they seem unlikely to experience a sustained drop.

(Nikkei)

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