Nissan Motor Co. (7201) became the first of Japan’s three-biggest automakers to surrender this year’s early stock rally after the yen appreciated and anti-Japan sentiment escalated in China.
Nissan fell 2.7 percent to 682 yen in Tokyo yesterday, 10 yen below its level at the start of the year, and gave up the 27 percent January-to-March rally that was its biggest in nine quarters. Honda, which started the year with its largest quarterly surge in a decade, has lost most of those increases and Toyota Motor Corp. (7203) has also ceded almost half its advance.
The reversal highlights Japanese carmakers’ increasing sensitivity to China, where nationwide protests against Japan flared this month and where Goldman Sachs Group Inc. (GS) estimates Nissan generates 30 percent of its profit. The yen, which has appreciated more than any major currency since April, has also damped earlier optimism over Japanese automakers, which were recovering from production disrupted by last year’s natural disasters in Japan and Thailand.
“The yen has been the main issue eroding Japanese carmakers’ share-price gains from the second quarter,” Satoru Takada, a Tokyo-based auto analyst at Toward the Infinite World Inc., a securities research company, said by telephone yesterday. “Concerns about China are the last straw for Nissan, which sent its stock plunging since last week.”
Nissan, which counts China as its biggest market, fell to as low as 669 yen on Jan. 12 before surging to as high as 900 yen on April 3. The shares of all of Japan’s carmakers declined in Tokyo trading yesterday.
The three-biggest Japanese automakers’s stocks fell an average of 13 percent in the April-to-June quarter after surging 33 percent in the preceding three months -- the biggest quarterly gain since they jumped 64 percent in the second quarter of 1981, according to data compiled by Bloomberg.
In the past week, some demonstrators protesting Japan’s purchase of a group of islands claimed by both Japan and China torched auto showrooms and smashed Japanese-branded vehicles, forcing Toyota, Honda and Nissan to temporarily shutter their factories in the country. As protests continue, China’s Passenger Car Association estimated that Japanese brands will lose their lead this year over German nameplates in the country for the first time since 2005.
Before protests in China flared up, investors had pushed up the yen on lingering concerns about the European debt crises and weaker-than-estimated growth in the U.S. and China. The yen gained 2.9 percent from April to June, based on Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The Japanese currency was last quarter’s biggest gainer after being the biggest loser in the January-to-March period.
The yen, whose gains hurt the value of Japanese exports when repatriated, has been hovering near a post-World War II high against the dollar and an 11-year high against the euro since the April-June quarter. It’s also at a stronger level than those projected by Japanese automakers in their latest financial forecasts.
Toyota, Nissan and Honda have forecast the yen to trade at an average of 80.6 against the dollar in the year ending March 31 and 105 against the euro, according to their latest financial projections. Every one-yen movement against the dollar leads to a 2.4 percent drop in operating profit at Nissan, 3.3 percent at Toyota and 2.9 percent at Honda, Goldman Sachs wrote in a research note in April.
Executives have also expressed concern. In an April interview, Nissan Chief Executive Officer Carlos Ghosn likened the yen to a “1,000-pound gorilla” threatening the recovery of Japanese carmakers’ earnings, while Toyota President Akio Toyoda has repeatedly referred to the strong yen as one of the “six obstacles” facing Japan’s auto industry.
In terms of corporate earnings, Japan’s Toyota-led auto industry is still rebounding from the tsunami in Japan and Thai floods. Toyota and Honda expect their full-year profit to more than double this fiscal year, while Nissan predicts net income to climb 17 percent.
That’s not enough to lure investors such as Yuuki Sakurai, President of Fukoku Capital Management Inc, who expects Japanese carmakers’ sales to slow in the second half, as the Chinese economy decelerates and after the Japanese government car subsidy program ended, he said.
“It’s kind of a ‘stay-away from the risk asset’ for the moment,” he said. “I may buy car stocks when the dust settles.”
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