Sharp Shares Extend Gains as Margin Traders Look to Cut Losses

Sharp Corp. (6753), Japan’s worst- performing major stock, gained in Tokyo for a seventh straight trading day as investors sought to cover short positions.

Sharp rose as much as 8.3 percent to 354 yen and traded at 328 yen as of the 11:30 a.m. break, headed for the highest level since July 13. Sharp has declined 51 percent this year, the worst performer on Japan’s benchmark Nikkei 225 (NKY) Stock Average, which has advanced 19 percent.

The number of shares held in margin accounts that will profit if the stock falls rose 64 percent in the past week to a record 58 million, suggesting traders are losing money and looking to cut their losses, data from Japan Securities Finance Co. show. Sharp has doubled in four weeks, erasing declines after the maker of Aquos televisions widened its annual loss projection twice to 450 billion yen ($5.4 billion).

“The stock is being bought back on short covering,” Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo, said by phone today. “Short positions have snowballed, with investors borrowing shares as much as they can to sell them.”

Osaka-based Sharp has rallied since it announced an agreement on Dec. 4 to sell as much as 9.9 billion yen of shares to San Diego-based Qualcomm Inc. (QCOM)

Sharp, which warned last month about its ability to survive, turned to Qualcomm, the biggest maker of mobile-phone chips, after failing to get a planned 67 billion-yen investment from Taiwan’s Foxconn Technology Group and hemorrhaging 103 billion yen in cash from operations in the fiscal first half.

“Individual investors are main buyers of the stock, and probably some hedge funds,” said Mitsuo Shimizu, a Tokyo-based analyst at Iwai Cosmo Holdings Inc. (8707) “The rally may end at some point, as there’s no change in the situation for Sharp.”

Japan Securities Finance, which lends money for margin trades, said on Dec. 14 it may set limits on margin trades for the company. Osaka Securities Finance issued a similar warning the same day.

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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

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