Sharp Rises Most in 5 Months as Decline May Be Overdone

Sharp Corp. (6753) rose the most in more than five months in Tokyo trading, reversing three consecutive days of declines, after a technical indicator showed the drop may be overdone.

The stock jumped as much as 11 percent, headed for the biggest increase since March 28, before trading hands at 202 yen, up by 8.6 percent, as of 1:38 p.m. local time. It had the biggest gain by percentage on the MSCI World Index. (MXWO)

Sharp is rebounding from a 19 percent three-day decline triggered by credit ratings cuts and a Nikkei newspaper report the company offered to lower the price of shares it plans to sell to Foxconn Technology Group. The three-day decline pushed Sharp’s 14-day relative strength index, which shows how rapidly prices advanced or dropped, to 38 yesterday. A level of 30 is taken by some technical analysts as an indication that a security’s price may climb.

“The fact that there wasn’t a bad report on Sharp this morning is good news for the stock,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “One day the market sees possibilities that Sharp will be rescued. Another day they’ll say Sharp will struggle, depending on news headlines.”

Taipei-based Foxconn and Sharp are renegotiating terms they agreed in March on the proposed sale of a 9.9 percent stake in the Japanese television maker at 550 yen apiece.

Sharp is seeking to raise cash and cut costs as it faces a total 706 billion yen ($9 billion) in bonds, commercial paper and borrowings maturing within one year. The company will cut 5,000 jobs, its first workforce reduction since 1950, as part of plans to reduce fixed costs by 100 billion yen, it said last month.

Rating Cut

Standard & Poor’s last week lowered its long-term rating on the Osaka-based electronics maker by two levels to BB+, the highest non-investment grade, saying it suffers from weak cash flow and deteriorating market conditions. Sharp, which has the biggest percentage decline on the MSCI Asia Pacific Index (MXAP) this year, was kept on a negative ratings watch.

Standard & Poor’s also cut Sharp’s short-term rating to “B,” the highest non-investment grade, and said that may be cut further.

“The stock is going up and down like a roller-coaster, reacting to news headlines every day,” Yasuda said. “It’ll probably remain volatile.”

Terry Gou, the billionaire founder of Taipei-based Foxconn, left Japan last week without announcing the conclusion of a deal to invest in Sharp. The two companies started renegotiations after Sharp widened its full-year loss forecast eightfold last month, causing its share price to slump.

Foxconn plans to proceed with its investment in Sharp “at the most appropriate time and most appropriate price” because it’s looking at the long-term prospects, Gou said Aug. 5.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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