Commonwealth Bank of Australia has offered its largest sale of notes tied to Japan’s benchmark stock index, flagging demand for bets the nation’s equities will rally after their worst start to a year since 2008.
The bank planned to settle A$450 million ($409 million) of three-year securities in seven batches from March 21 to April 3 which pay when the Nikkei 225 Stock Average index reaches a certain level, according to data compiled by Bloomberg. The two biggest portions, at A$100 million each, are the lender’s largest structured notes of any kind since July 2010.
“From a valuation perspective, the Japanese market in the short term looks oversold,” Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners Inc. in Singapore, said in a phone interview on March 21. “There are some fantastic opportunities and I think corporate earnings are going to underlie that.”
The Nikkei 225 (NKY) has declined 12 percent this year ahead of an increase next month in Japan’s sales tax to 8 percent from 5 percent, the first time the levy has been raised since 1997. Short-selling of Japanese stocks rose to the highest since at least October 2008 last week.
While the country’s economy wasn’t strong enough to cope with the increase in the consumption tax in 1997, it may be different this time because the Bank of Japan may loosen monetary policy further, according to BGC Partners’ Anvarzadeh.
“This time the economy could be in much better shape,” he said.
The Nikkei 225 increased 1.3 percent today to 14,405.69 as of 10:33 a.m. in Tokyo. Japan’s markets were closed March 21 for a holiday.
Goldman Sachs Group Inc. underwrote A$200 million of the CBA issues, Citigroup Inc. (C) arranged A$200 million and Natixis (KN) handled the remaining A$50 million, according to Bloomberg-compiled data.
Tracy Hicks, a Sydney-based spokeswoman for CBA, declined to comment when contacted by e-mail on March 21 seeking confirmation on the notes.