Nikkei falters on profit-taking after surge

By Antoni Slodkowski

TOKYO (BestGrowthStock) – Japan’s Nikkei share average dipped 0.4 percent on Friday, held back by profit-taking after rallying nearly 10 percent so far this month on a pick-up in overseas investor demand for Japanese equities.

Trading volume was thin after the U.S. Thanksgiving holiday and ahead of the weekend, with about 1.7 billion shares changing hands on the Tokyo exchange’s first section, well below the daily average of 2.1 billion shares over the past five sessions.

The benchmark Nikkei fell 40.20 points to 10,039.56 but was still up 9.1 percent so far for November, on track for its biggest monthly percentage rise since a 9.5 percent gain in March.

The broader Topix index dipped 0.3 percent to 866.81.

The Nikkei has outperformed its overseas peers this month, helped by the dollar’s rebound against the yen and buying of Tokyo shares by overseas investors.

Japanese shares are underperforming globally, however, losing over 4 percent so far this year, while Hong Kong’s benchmark Hang Seng Index has gained 4.6 percent and Wall Street’s Dow Jones index has climbed 7.3 percent on the year.

“Recent purchases by foreign investors are not simply short covering but I think fresh funds being poured into Japanese shares. More follow-through buying could drive up share prices further,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

“Our next major focus would be consumption in the United States during the holiday season. Any strong signals in U.S. economic indicators, especially in consumption and jobs, would prompt more fund flows into share markets.”

Overseas investors were net buyers of Japanese stocks for a third straight week last week, buying a net 172 billion yen ($2.1 billion) in the week to November 20, finance ministry data showed. That brings their total net buying in November to 464 billion yen.

“Even though there’s a bit more allocation to Japan, I think it’s more to do with portfolio switching,” said Michael Newman, head of Japan equity sales at Macquarie Capital Securities.

“If you can squeeze 20 percent out of Japan into the year end, depending on the macroeconomic outlook in the new year, you may want to re-allocate again into Asia,” Newman said.

Overall sentiment in the market remains bullish, with many market players now predicting the Nikkei is likely to end the year around the 10,500 mark.

Tokyo shares now look attractive based on valuations, said Nicholas Smith, director of equity research at MF Global FXA Securities in Tokyo.

“We’ll get a real test of the global economy through the next two to three quarters, but I think valuations are extremely good in Japan,” Smith said, referring to gauges such as the price-to-book ratio as well as the gap between dividend yields and yields on government bonds.

“Broadly we’re sitting at one times book, against the S&P 500’s 2.1 and London’s 1.9,” Smith said.

Shares in Hitachi Ltd dropped 1.5 percent to 396 yen after Britain’s government delayed until next year a decision on how to replace aging Intercity express trains, a project analysts believe will cost around 7.5 billion pounds ($11.82 billion).

Agility Trains, a consortium consisting of Hitachi and British infrastructure project manager John Laing, is the preferred bidder on the contract.

($1=83.58 Yen)

($1=.6345 Pound)

(Additional reporting by Chikafumi Hodo; Editing by Edmund Klamann and Joseph Radford)

Nikkei falters on profit-taking after surge