Nomura Profit Gains Seen Cooling as Japan Stock Rally Wanes

Japan’s largest brokerages, whose first-half profits soared more than 10-fold as Prime Minister Shinzo Abe’s economic-stimulus program bolstered investors’ appetite for local stocks, may find the magic to be waning.

Nomura Holdings Inc., the nation’s largest securities firm, yesterday reported second-quarter net income rose to 38.1 billion yen ($391 million) from 2.8 billion yen a year earlier. Profit at Daiwa Securities Group Inc. climbed to 35.5 billion yen for the three months ended Sept. 30, from 7.4 billion yen. Profit at both firms declined from the first quarter.

Those earnings windfalls may become more elusive in the second half as investors’ growing skepticism toward so-called Abenomics trigger a drop in trading volumes and brokerage commissions. Nomura’s quarterly results missed analysts’ estimates as demand for Japanese stocks eased and the benchmark equities gauge dropped from its May peak.

“We need to see whether Abenomics will really feed into the macro economy and lead to growth,” said Azuma Ohno, a Tokyo-based analyst at Barclays Plc. “Without a rebound in stocks, it’s difficult to expect good sales for investment trusts or a pickup in brokerages’ earnings.”

Japan’s Topix Index, the best performer among major developed markets this year, has lost more than 5 percent from its May 22 peak as investors examine whether Abe will successfully implement business deregulation policies to augment the fiscal spending and monetary easing already under way. The Topix rose 0.7 percent at 10:06 a.m. in Tokyo.

Daiwa Dividend

Shares of Nomura gained 0.1 percent to 738 yen. Daiwa climbed 3.1 percent to 902 yen after the company raised its half-year dividend yesterday from 3 yen to 17 yen, the highest since it began interim payouts nine years ago.

While an index of securities firms was the best performer on the Topix in the year ended Sept. 30, it has since declined 1.4 percent. The average daily volume of shares traded on the first section of the Tokyo Stock Exchange dropped 37 percent last quarter from the previous three months, data compiled by Bloomberg show.

Nomura Chief Financial Officer Shigesuke Kashiwagi said yesterday that he anticipates investment banking operations, such as managing stock and convertible bond sales, will maintain their momentum, along with merger-advisory services.

“Demand for cross-border acquisitions from Japanese firms is still high and they have enough cash,” he said on a conference call with analysts.

Top Underwriter

Nomura was Japan’s top equity underwriter last quarter, data compiled by Bloomberg show, as the Tokyo-based firm arranged transactions including a 125 billion-yen share sale by Dentsu Inc., Asia’s biggest advertising company. The company was also the No. 1 arranger of bond sales, the data show.

Daiwa CFO Mikita Komatsu said the market will react negatively if the prime minister’s policies falter. Still, he’s optimistic that won’t be the case.

“When I actually meet overseas investors, they don’t worry too much,” he said at a news briefing yesterday. “There are still many foreign investors who think they need to add Japanese stocks to their portfolios.”

The reduced activity in the market during the fiscal second quarter caused a slowdown in sales of investment trusts, which generate commissions for the brokerages, said Shinichi Ina, an analyst at UBS AG in Tokyo.

“There’s a lot of uncertainty going into the year end,” Ina said. “We’re in the phase where we are testing whether Abenomics will have a lasting effect.”

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