Nikkei holds gains but economic outlook murky

By Antoni Slodkowski Ayai Tomisawa

TOKYO (BestGrowthStock) – Japan’s Nikkei average held on to gains on Wednesday after hitting a seven-month closing high the day before, with a subdued economic statement by the Federal Reserve despite strong U.S. retail sales for November prompting investors to snap up profits.

The Nikkei stayed almost unchanged as the results of the Bank of Japan’s latest tankan survey, which showed sentiment among big manufacturers worsened for the first time in seven quarters, came in line with the market’s expectations.

Market players said the Nikkei was trapped in a narrow range as domestic investors aggressively took profits on its rally of around 12.7 percent since the beginning of November, while foreign investors continued buying financial shares seen as undervalued.

Foreign securities houses, which place blocks of orders ahead of the Tokyo opening, have been bullish for 13 straight days.

“The question now is how long their buying is going to continue,” said Norihiro Fujito, general manager at Mitsubishi UFJ Morgan Stanley, adding that once they finish their year-end portfolio tweaking and take Christmas breaks, Tokyo equities may lose steam.

“That’s why if the index doesn’t quickly pierce resistance around 10,420, where futures and options contracts expiring in December settled on Friday, we will may see a quiet year-end as volume tends to shrink around Christmas,” said Fujito.

The benchmark Nikkei slipped from a seven-month closing high hit on Tuesday, shedding 6.99 points to 10,309.78.

The broader Topix index gained 0.06 percent to 902.42.

Otsuka Holdings Co Ltd ended up 1.9 percent at 2,140 yen in its trading debut on Wednesday after the drug firm priced its record $2.4 billion initial public offering conservatively and with investors encouraged by an upswing in the broader market.

The IPO of Otsuka, Japan’s No.2 drug maker by sales after industry leader Takeda Pharmaceutical, was the largest on record for a pharmaceuticals firm.

RETAIL INVESTORS BOOST VOLUME

Retail investors boosted volume, which stayed above the two billion shares mark for a second straight day on the Tokyo Stock Exchange’s first section, with 2.1 billion shares changing hands, as continuous buying by foreigners boosted the confidence of individual investors.

Retail investors were detected picking up low-priced smaller stocks while major global cyclical stocks are seen as overbought.

“This is something of a trend seen in December, when institutional investors chase global cyclical stocks on upbeat expectations for the next year,” said Hiroichi Nishi, general manager at Nikko Cordial Securities.

The toraku or up-down ratio stood at 150, above the 120 line that signals an overheating market. The ratio is calculated by dividing the 25-day moving average of stocks that gained by the 25-day average of those that fell.

“Until the current level of overheating is adjusted, such buying in small stocks may support the market,” Nishi said.

Dentsu Inc, Japan’s biggest advertising firm, jumped 2.7 percent to 2,524 yen in heavy trade after Mitsubishi UFJ Morgan Stanley hiked the company’s rating to “outperform” from “neutral” on strong TV advertising sales forecasts.

Also boosting sentiment was news that Japanese firms will see their combined tax bills reduced by about 600 billion yen ($7.18 billion) under proposed reforms to be approved by the cabinet on Thursday, the Nikkei business daily said.

“This move wouldn’t be enough to drive the market higher, but it is definitely a good help,” said Susumu Kato, chief economist at Calyon Credit Agricole Corporate and Investment Bank.

A total of 895 shares advanced while 591 declined.

($1=83.60 Yen)

(Editing by Michael Watson)

Nikkei holds gains but economic outlook murky