TOKYO, May 22: Japan’s Nikkei average climbed to a 5-1/2-year high on Wednesday, ahead of the outcome of the Bank of Japan policy-setting meeting, with Sony Corp surging on reports it is considering evaluating a proposal to spin off its entertainment assets.
By the midday break, the Nikkei advanced 1.2 percent to 15,559.95 after trading as high as 15,564.90, its best mark since December 2007.
A senior trader at a foreign bank said buy orders outpaced sell orders by 1.5 to 1, with Japanese retail investors active in the market.
‘It’s probably fair to say that the really heavy institutional flow that we have been seeing in certain days this month has slowed down a little bit. We have the BOJ meeting. People are just going to be a little bit cautious,’ he said.
The BOJ is expected to stand pat on monetary policy despite jitters over the recent volatility in bond markets, hoping it can prevent a renewed spike in yields by fine-tuning market operations.
The benchmark Nikkei has rallied about 50 percent this year, and it has soared nearly 10 percent since May 9, when the dollar broke above the 100-yen mark.
‘There is still a structural underweight in Japanese equities in terms of the global investors,’ the senior trader said. ‘People who have been making money have been fast money guys … And the domestic fast money guys.’
He estimated global investors would plough about $100 billion into Japanese equities to switch their position to neutral from underweight.
According to the Ministry of Finance, foreign investors have invested a total of 7.57 trillion yen ($74 billion) into Japanese stocks since the end of 2012.
Nomura said Japanese retail investors accelerated their investment in domestic assets via toshins, or investment trusts, last week to 76 billion yen from 7 billion yen. They sold 97 billion yen of foreign currency-denominated toshins last week, the first net selling in four weeks, it added.
SONY IN PLAY
Sony jumped 8.4 percent to a two-year high after the Nikkei newspaper said the company is considering evaluating a proposal from top shareholder Third Point LLC, controlled by Californian billionaire Daniel Loeb, to spin off its movie and music business. It was the third-most traded stock on the main board by turnover.
The stock has surged nearly 145 percent so far this year, outpacing the broader market, although it now carries a 12-month forward price-to-earnings ratio of 35, more than double the 15.9 average for Japanese equities, according to Thomson Reuters Datastream.
The broader Topix gained 0.7 percent to 1,279.13 in active trade, with volume 3 percent above its full daily average for the past 90 trading days.
‘Japan is rapidly becoming a big momentum trade and thus liable to volatility; trading a momentum market has to be a case of trying to stay long quality rather than chasing beta,’ Mark Tinker, manager at AXA Framlington Global Opportunities Fund, wrote in a note.
‘The near term risks we see are largely associated with the current behaviour of the Japanese government bond market.’
($1 = 102.5450 Japanese yen)
(AGENCIES)
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