Japan Stocks Recoup Quake Losses on Yen Slide, Building
Japan’s Nikkei 225 Stock Average (NKY) erased losses since the country’s record earthquake as the declining yen and $241 billion of reconstruction spending helped make it the best-performing benchmark index in the developed world this year.
The Nikkei 225 surged 21 percent in 2012 as central bank intervention helped weaken the yen, boosting the outlook for Japan’s exporters as the country rebuilds. Taiheiyo Cement Corp. (5233) led the Nikkei’s gains, climbing 61 percent on efforts to repair damage from the temblor and tsunami. Fast Retailing Co. (9983), a discount clothier, jumped 51 percent as electricity shortages forced people to buy more seasonal clothing. Something Holdings Co. (1408), a provider of ground surveying and strengthening, increased eightfold, the most of any Japanese listed stock.
The Nikkei 225 rose 2.4 percent to 10,255.15 at the 3 p.m. close in Tokyo yesterday. The gauge fell 1.7 percent to finish at 10,254.43 on March 11, 2011, when the earthquake struck 14 minutes before the market closed. The measure fell 16 percent in the next two trading days, the biggest decline since the October 1987 Black Monday crash.
“It is profound that the market has finally made back its losses, but we have a long way to go toward true reconstruction,” said Ayako Sera, a market strategist at Sumitomo Trust & Banking Co. (8403), which manages the equivalent of $302 billion. “It was shocking the yen surged that much after the quake. The stronger yen had held back a stock recovery.”
The earnings outlook for exporters has improved after the Bank of Japan in February expanded monetary stimulus to drive down the yen and as economic reports from the U.S. signaled recovery in the world’s largest economy. Companies are benefiting from about 20 trillion yen ($241 billion) earmarked for reconstruction spending since the March 11 disaster.
A gauge of carmakers, which includes some of Japan’s largest exporters such as Toyota Motor Corp. and Honda Motor Co., had the fourth-largest advance on the broader Topix Index this year, followed by a measure of shipping companies. Toyota, which gets more than 70 percent of sales outside Japan, has contributed the most to the Nikkei’s advance this year, according to data compiled by Bloomberg.
The yen surged in the days following the quake and the ensuing tsunami and nuclear crisis amid speculation that Japanese companies would need to repatriate funds to pay for reconstruction. Action by the Group of Seven nations curbed those gains until demand for a haven from the slowing recovery in the U.S. and the European sovereign-debt crisis drove the currency to a post-World War II high against the dollar in October. It has since retreated about 9 percent.
“What I see on the ground in Japan is very different from last time I was there in December,” said Kenichi Amaki, a portfolio manager at Matthews International Capital LLC, which manages $17.8 billion. “In December, the yen was still strengthening, a lot of companies were pessimistic about 2012. This time around, I think they’re still cautious but they’ve turned more optimistic,” he said in an interview in Hong Kong on March 20.
The Nikkei 225 will rise to 10,500 by year-end, according to the median of 15 analysts surveyed by Bloomberg. That’s just 2.4 percent higher than the March 11, 2011, close. The Topix will end the year at 875, below the 915.51 close on the day of the quake, according to the median of 17 strategists’ estimates.
Before the quake struck, Japan’s equity market was among the developed world’s worst performers. Where the MSCI World Index rose 91 percent from its bottom on March 9, 2009, to the day before the quake, the Nikkei 225 climbed 47 percent. That rally pared losses since a December 1989 peak to 73 percent by March 10, 2011.
Recovery ‘At Last’
About half of the companies listed in Japan recovered in their share prices and market values since March 11, according to data compiled by Bloomberg. Companies that rose the most include First Energy Service Co. (9514), an energy-management services provider, and Hazama Corp. (1719), a builder of dams and highways.
“The equity recovery has come at last,” said Masaru Hamasaki, who helps oversee 1.88 trillion yen ($23 billion) as chief strategist at Toyota Asset Management Co. (CKAM) in Tokyo. “The global economy is holding up and will support the market here after reconstruction demand peaks in the first half. The Nikkei will rise to between 11,000 and 12,000 this year.”
The Nikkei 225 has risen 26 percent since bottoming at 8,160.01 on Nov. 25, as signs of a U.S. recovery and progress in containing Europe’s debt crisis buoyed the global outlook. Among developed-market benchmark equity gauges, Germany’s DAX Index is the closest to the Nikkei 225, having also advanced about 21 percent since the start of the year.
Shares on the Japanese gauge trade at 1.35 times net assets compared with 2.3 times for the Standard & Poor’s 500 Index and 1.46 times on the Stoxx Europe 600 Index. The Nikkei’s price-to- book ratio was as low as 1.06 in November. A reading below one means a company can be bought for less than the value of its assets.
The average daily number of shares traded on the first section of the Tokyo Stock Exchange rose to about 2.18 billion this year, returning near the levels in the three months before the quake. After the initial jump amid the unfolding nuclear disaster at Fukushima, average daily volume fell to 1.83 billion shares between March 18 and Dec. 30.
“General contractors and construction machinery-related shares are an attractive investment, as there’s scope for demand on reconstruction efforts,” said Mitsuyuki Kobayashi, chairman of Metzler Asset Management, which manages about 2 billion euros ($2.7 billion). “But the clean-up of rubble isn’t moving forward, and there’s a possibility there won’t be major recovery investment in areas with high radiation. We can’t be too much at ease.”
Japan’s economy contracted 0.7 percent in the three months ended Dec. 31, less than the government’s preliminary estimate of 2.3 percent, improving prospects for the recovery.
Taiheiyo Cement surged 61 percent to 182 yen since the close on March 11 last year, while Chiyoda Corp. (6366), a factory builder, gained 58 percent to 1,085 yen.
Fast Retailing gained 51 percent to 18,460 yen and Something Holdings (1408) surged to 207,700 yen from 25,200 yen. Toyota Motor Corp., the country’s biggest carmaker and a bellwether for exporters, gained 0.1 percent to 3,600 yen.
“Japan’s a classic case of the baby thrown out with the bathwater,” said Matthews International’s Amaki. “For an active manager like me, that presents an opportunity for us to buy the good ones and sort out the bad.”
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