Japanese shares seen as benefiting from the 2020 Olympics surged too far, too fast after Tokyo won hosting rights, with the rally outweighing the estimated economic impact, according to Shinkin Asset Management Co.
About 13 trillion yen ($131 billion) was added to the market capitalization of the Topix index last week after the city’s winning bid was announced, data compiled by Bloomberg show. One-third to half the gains were from investors trading on the Olympics news, Shinkin Asset said. The Tokyo Metropolitan Government projects the event will boost Japan’s economy by 2.96 trillion yen in the next seven years.
“People were surprised Tokyo got it after reports Madrid might win, so the reaction was big,” said Naoki Fujiwara, Tokyo-based chief fund manager at Shinkin Asset, which oversees about $6 billion. “Investors bought shares without thinking of how much impact the games would have on companies’ profits.”
The Topix climbed 3.7 percent in the two days after Tokyo’s selection. Shares had fallen on Sept. 6 after Spanish newspaper El Mundo said Madrid was set to win the hosting rights.
Gauges (TPX) tracking builders, developers, service industries, airlines, logistics stocks, steelmakers, machinery companies and cement producers listed on the Topix added a combined 4.9 trillion yen in market value last week, data compiled by Bloomberg show. That’s about 37 percent of the total increase.
Construction companies advanced the most, with building contractor Taisei Corp. (1801) soaring 24 percent. The company expects sales to rise to 1.5 trillion yen in the year to March 2016, a 10 percent increase from the current fiscal year, the Nikkei newspaper reported Sept. 12, citing President Takashi Yamauchi.
“The Games are still seven years away and it’ll be a long time before there is any actual effect on infrastructure development or tourism,” Koichi Kurose, chief economist in Tokyo at Japanese lender Resona Bank Ltd., said Sept. 11. “After the initial exuberant reaction, it wouldn’t be strange for stocks to take a breather.”
Taisei and Kajima Corp., another building contractor, were among the 13 decliners on the Nikkei 225 Stock Average today. Taisei dropped 2.2 percent to 488 yen as of 12:35 p.m. in Tokyo after surging 24 percent last week. Kajima slid 0.7 percent to 401 yen after jumping 13 percent in the same period.
The Topix climbed 37 percent this year, the most among developed markets, amid optimism Prime Minister Shinzo Abe and the Bank of Japan can lead the country out of deflation through unprecedented monetary easing.
While estimates for the direct Olympics economic payoff don’t justify last week’s rally, investors are betting that the Games will also improve consumer sentiment and have longer-term benefits for industries such as tourism, Shinkin Asset’s Fujiwara said.
UBS AG projects a direct effect of 3 trillion yen from the Games and an additional benefit of 10 trillion yen to 23 trillion yen from infrastructure upgrades under Abe’s reform programs and for the Olympics, as well as from private-sector investment, analyst Toru Ibayashi wrote in a Sept. 9 report.
Tokyo is planning its biggest housing project in 42 years to lodge athletes. The 95.4 billion yen Olympic Village complex would occupy a 44-hectare (109-acre) parcel of land next to Tokyo Bay and would be financed by developers, Kenichi Kimura, who is in charge of the finances for the city’s bid at the Tokyo Metropolitan Government, said in an interview in July. Separately, the government plans to spend 153.8 billion yen for new construction and renovations at 11 sites, he said.
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