Nikkei flat on profit-taking, euro zone worries

By Antoni Slodkowski and Ayai Tomisawa

TOKYO (BestGrowthStock) – Japan’s Nikkei average traded flat for a fourth straight session on Thursday as optimism over the dollar’s rise to a near three-month high against the yen the previous day was offset by worries over euro zone debt and overheating in the market.

The Nikkei has been trapped in a narrow 190 point range for over a week as domestic investors aggressively took profits on its rally of around 12 percent since the beginning of November, while foreign investors continued buying financial shares seen as undervalued.

Trading was active, with volume solid for a third straight day. Over two billion shares changed hands on the Tokyo Stock Exchange’s first section. Advancing issues outnumbered declining ones by 805 to 690.

Foreign securities houses, which place blocks of orders ahead of the Tokyo opening, made net sell orders on Thursday after making net buy orders for 13 straight days.

Japanese investors sold a net 309.1 billion yen ($3.67 billion) in foreign bonds during the week to December 11, according to Finance Ministry data. That compares with net sales of 760.8 billion yen a week earlier.

However, traders say even though profit-taking may cause the market to lose steam temporarily, it does not suggest a downtrend for Japanese equities.

“Recent selling in bonds is suggesting a shift to the equities market from bonds,” said Mattia Ciancaleoni, director of equity sales at Citigroup Global Markets Japan.

He said the Japanese market, which has been underperforming overseas markets, will likely gain further toward the year-end.

“There is a sign of recovery in the market, so I don’t think investors want to take huge vacations to miss more positive signs like that in the next few weeks,” Ciancaleoni said.

Japanese government bonds slipped on Thursday, taking their cue from a continuing slide in U.S. Treasuries, with a liquidity-enhancing auction eyed as a chance to gauge investor demand after this week’s sharp sell-off.

The benchmark Nikkei (.N225: ) added 1.51 points or 0.01 percent to close at 10,311.29 while the broader Topix index (.TOPX: ) gained 1.42 points or 0.2 percent to 903.84.

Japanese shares, which are down some 2.2 percent in the year to date and have underperformed globally, stayed flat as investors’ appetite for risky assets lessened, with worries about euro zone bonds resurfacing after Moody’s warned it may downgrade Spain’s debt.

“The Nikkei is taking a breather after a six-week rally, but sentiment remains bullish overall,” said Takashi Ohba, a senior strategist at Okasan Securities.

Ohba said that while major global cyclical stocks, which are seen as overbought, are edging lower, retail investors continue picking up low-priced smaller stocks, boosting volume and adding to the underlying positive mood.

“If the dollar gains a little bit more against the yen and goes above 85 yen it could trigger the Nikkei’s move above the current tight range,” said Ohba.

A softer yen supports exporters in the long run, as many of them based their earnings estimates for the October-March second half on an assumed dollar/yen rate of around 80-83 yen.

If retail investors start trading a bit more aggressively and boost volume, the Nikkei may pierce strong technical resistance at 10,420.74, the level where futures and options contracts expiring in December settled on Friday, traders said.

E-commerce business operator Dena (2432.T: ) surged 9.9 percent to 2,975 yen after it said it would offer its flagship social gaming platform on Samsung Electronics Co Ltd’s (005930.KS: ) handsets worldwide.

Aozora Bank Ltd (8304.T: ) surged 7.8 percent after Goldman Sachs started coverage of the bank at “buy” and a target price of 190 yen. The brokerage said the stock is cheap, with its price-to-book ratio around 0.52 for the financial year ending next March compared with the banking sector’s average PBR of 0.73.

Other banks extended gains in heavy trade as foreign funds continued adding underweight financial stocks to their portfolios.

Meanwhile, Nomura Securities said in a recent report that when the JGB yield curve steepens it recommends overweighting such sectors as financials and real estate.

Mitsubishi UFJ Financial Group (8306.T: ) gained 1.4 percent to 435 yen, while Sumitomo Mitsui Financial Group (8316.T: ) added 2.2 percent to 2,856 yen.

In contrast, Otsuka Holdings (4578.T: ) lost 6.6 percent to 1,999 yen, well below its initial price of 2,100 yen in its debut on Wednesday as investors worry over the company’s heavy reliance on Abilify, a schizophrenia drug due to lose patent protection in 2015.

(Editing by Michael Watson)

Nikkei flat on profit-taking, euro zone worries