Nexon Leads Japanese Charge to Top of Asia's Tech Stocks in 2015

  • Japan's Mixi and GungHo topped rankings in previous years
  • Asian mobile gaming roaring ahead in a fickle global market

Japanese companies became Asia’s best-performing technology stocks in 2015, as the country often identified with fading electronics giants produced such stand-outs as Maple Story developer Nexon Co.

Nexon marked the fourth straight year that a Japanese game company has topped a list that encompasses Internet players and makers of semiconductors, displays and enterprise software.  The maker of games for computers and smartphones climbed about 76 percent, the biggest increase last year on the 111-member MSCI Asia Pacific Information Technology Index, excluding recently added Chinese American Depositary Receipts traded in New York.

In a testament to the rising earnings power of Asian mobile gaming, Japan’s GungHo Online Entertainment Inc. held the top spots in both 2012 and 2013 as it rode the smash-hit Puzzle & Dragons to a more than 40-fold surge. Mixi Inc. took the crown in 2014 after Monster Strike almost tripled its shares. 

“The mobile game sector often produces break-out successes,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo. “These companies have a unique cost structure. When they have a hit, the profit growth is explosive.”

Skeptics Beware

Japan Inc. is more often associated with erstwhile technology powerhouses like Sony Corp. and Toshiba Corp. struggling for relevance in a smartphone era. Yet it proved naysayers wrong in 2015 as foreign investors bet on steady earnings growth, improving governance and a weaker yen. At the same time, Chinese stocks weathered a $5 trillion market wipe-out over the summer and Samsung Electronics Co.’s dwindling global smartphone market share held back its country’s benchmark indexes.

Japanese stocks took nine of the 10 top slots on MSCI’s Asia rankings, excluding Chinese ADRs. Shimadzu Corp., a maker of precision tools, was second with a 66 percent gain, followed by Obic Co. Ltd.’s 64 percent and Otsuka Corp.’s 56 percent.

“The Japanese market as a whole performed better than its” Korean and Taiwanese counterparts, said Yasuaki Kogure, chief investment officer at SBI Asset Management Co. “It was also less affected by the slowdown in China.”

Japan also happens to be the world’s largest mobile gaming market with $6.2 billion in 2015 revenue, according to SuperData Research Inc. The staying power of its leading developers belies the shifting fortunes of peers elsewhere, as Angry Birds creator Rovio Inc. and Candy Crush studio King Digital Entertainment Plc. struggle to devise games that can replicate the success of their original marquee titles.

Nexon’s Ascendancy

Nexon rose to a record in December after forecasting net income in fiscal 2015 would double from a year earlier. Unlike the makers of Candy Crush and Clash of Clans, Nexon is balancing both PC and smartphone businesses. China and South Korea are its largest markets, dominated by titles such as Maple Story 2. In Japan, smartphone users generate three times the revenue of PCs for Nexon.

China, which accounts for almost two-thirds of the region’s mobile gamers, is Asia’s second-largest mobile gaming arena with $5.2 billion in 2015 revenue. A Chinese gaming stock, Netease Inc., tops the rankings if ADRs that have only been in the index for a month are taken into account. 

Netease -- creator of Fantasy Westward, among the top-grossing mobile games according to AppAnnie -- surged more than 80 percent in 2015. MSCI added 14 U.S.-traded Chinese companies to its index from Nov. 30, to better reflect the heft of overseas-traded stocks such as Alibaba Group Holding Ltd.

The Laggards

At the other end of the spectrum, Taiwanese technology companies were among Asia’s worst performers last year as demand shifted away from desktop computers to smartphones and tablets. Japan’s Topix index climbed 9.9 percent last year, its fourth straight year of growth. That compares with a 10 percent drop for its Taiwanese counterpart.

Once a leader in computer innovation and powerhouse in hardware and semiconductor manufacturing, Taiwan’s laggards last year included former PC giant Acer Inc. and smartphone maker HTC Corp., once the biggest seller in the U.S. Both were down more than 40 percent.

Tencent Holdings Ltd. was the second-best gaming stock on MSCI’s index last year, again excluding Chinese ADRs that joined in December. The Hong Kong-traded Internet giant posted a record third-quarter profit in November, withstanding a slowing domestic economy through the popularity of its online games and streaming HBO shows. Founder Ma Huateng has grown its WeChat and QQ messaging platforms well beyond their roots and into games and social networking, boosting revenue growth.

“Tencent is up a lot due to its strong financial results and continued dominating position in China PC and mobile Internet,” said Michelle Ma, an analyst at Bloomberg Intelligence.

Before it's here, it's on the Bloomberg Terminal.