In just one quarter, the developed world’s biggest stock rally has given way to its worst slump.

Japan’s Topix index, up 51 percent last year, has fallen 8.9 percent in the three months since, almost twice as much as the next-worst market, Hong Kong. The retreat is emboldening short sellers, whose trades made up as much as 36 percent of daily Tokyo Stock Exchange volume this month. Foreign investors sold 975 billion yen ($9.5 billion) of Japanese shares in one week in March, the most since the crash of 1987.

While equities struggled around the world in the first quarter, declines were worse in Japan, where the euphoria created by Prime Minister Shinzo Abe and the central bank’s steps to beat deflation showed signs of wearing off. An appreciating yen and concern about Tuesday’s sales-tax increase punished shares more than the rest of the world at a time when China’s slowdown, Russia’s annexation of Crimea and worry that the U.S. will raise interest rates sooner than anticipated made gains harder to come by.

“This situation is unfortunate and saddening,” Hisashi Iwama, a senior portfolio manager who helps oversee 12.7 trillion yen at Diam Co., said by phone on March 26. “I’d expected stocks to remain level during the first half of this year.”

Developed markets went nowhere in the last three months, with equities tracked by the 23-country MSCI World Index rising 0.1 percent after posting gains averaging 6.1 percent in five of the last six quarters. Concern the Federal Reserve’s reduction of stimulus will curb the global recovery and projections that China will post its slowest economic growth in 24 years halted an advance that added $9.6 trillion to worldwide share values in 2013.

The Topix rose 3.5 percent last week to pare its loss this quarter to 8.9 percent. Stocks in the MSCI World Index added 0.5 percent. The Standard & Poor’s 500 Index, whose 30 percent gain in 2013 was its biggest in 16 years, lost 0.5 percent the past five days and has advanced 0.5 percent since December. (Bloomberg)