Nikkei edges up, banks lead gains on good earnings expectations

Tue Jan 29, 2013 2:17am EST

* Banks benefit from report seeing higher earnings
    * Retail investors trade volatile smaller stocks - trader
    * KDDI lifts full-year earnings forecast
    * HSBC cuts Japan rating, BNP sees index rising to 13,000

    By Ayai Tomisawa
    TOKYO, Jan 29 (Reuters) - The Nikkei share average edged up
on Tuesday as investors welcomed a newspaper report that major
banks were likely to have significantly larger profits this
year, while small caps such as bio-chemical stocks attracted
retail investors.
    Investors have been piling into the Japanese market in the
hope that "Abenomics", Prime Minister Shinzo Abe's brand of
economic policy involving aggressive monetary easing and a
weaker yen, will boost exporters, financials and real estate.
    Sumitomo Mitsui Financial Group (SMFG), Mizuho
Financial Group and Mitsubishi UFJ Financial Group
(MUFG) rose between 2.9 and 4.4 percent after the
Nikkei newspaper said the recent stock rally would boost the
value of banks' own shareholdings and their net profit in the
current fiscal year.
    The banks were three of the four most-traded stocks by
turnover on the main board.
    "Everyone has been speculating on who will benefit from
Abenomics, and banks were one of the candidates. Hearing that
they will actually see those benefits is a big positive for the
market," said Tetsuro Ii, chief executive of Commons Asset
Management.
    The Nikkei rose 0.4 percent to close at 10,866.72,
or 1.2 percent below a 32-month high of 11,002.86 reached on
Monday.
    Market players said that investors have started looking into
sectors outside of exporters as there's been a pause in the
trend of the yen weakening. 
    They pointed to the heat around small and mid-sized stocks,
which market watchers say retail investors have been piling
into, partly because of credit deregulation starting in January
that enabled them to use the same collateral for multiple margin
trades in the same day.
    "When the currency moves are not serving as a big catalyst,
investors trade on volatile stocks hoping to secure gains from
margins," said Mitsushige Akino, general manager of investment
department at Ichiyoshi Asset Management.
    Such small caps as biotech companies were in demand from
retail investors. Japan Tissue Engineering Co surged
as much as 26 percent during the day before ending up 4.5
percent while DNA Chip Research Inc jumped 17 percent.
    "These stocks can offer sharp gains through active price
movements... And when the yen weakens again, they are quick to
sell these stocks and add more exporters," Akino said.
    Some investors are turning their eyes to earnings reports
that have started for the October-December quarter.
    Companies reporting their results this week include Sumitomo
Mitsui Financial Group, NTT Docomo Inc, Toshiba Corp
 and Honda Motor Co.
    KDDI Corp gained 2.8 percent after the mobile phone
operator lifted its full-year forecast by 1 percent to 505
billion yen ($5.57 billion) on increased contracts for
smartphones.  
    "I think earnings are going to be pretty weak (for the
period), but most companies are going to get ignored as most
people are looking forward to improvements in the yen," said a
hedge fund manager.
    The yen has slid around 10 percent over the past two
months, a trend that boosts exporters once their overseas
revenue is repatriated. On Tuesday, the currency firmed to 90.76
against the dollar from the previous day's high of 91.26.
    Maeda Corp tumbled 13 percent after the contractor
forecast an operating loss of 7 billion yen for the year ending
March, down from a previous estimate of 5.2 billion yen profit,
citing the increased cost of construction materials.
    
    MIXED FEELINGS
    "The two factors to watch now are whether foreign investors,
who drove the recent rally, remain bullish and continue buying,
and whether retail investors continue to buy into emerging
stocks that are relatively immune to the exchange rate," said
Yoshihiro Ito, chief strategist at Okasan Online Securities.
    Foreign banks have mixed view of the outlook for the
Japanese market. While BNP Paribas has raised its target for the
Nikkei to 13,000, or nearly 20 percent higher than its current
level, HSBC shifted Japan back to "underweight" in its global
stocks portfolio after raising it to neutral in December.
    "We feel the excitement over 'Abenomics' is now priced in,
and the Bank of Japan has yet again shown it will do nothing
dramatic to end deflation, Garry Evans, global head of equity
strategy at HSBC, said in a note on Monday.
    The BOJ announced a 2 percent inflation target at its last
policy meeting on Jan. 22 and committed to open-ended buying of
assets, but only from 2014, which disappointed some investors
hoping for more immediate action. 
    The broader Topix gained 0.8 percent to 920.76,
with 3.47 billion shares changing hands, the same level with
last week's average daily volume of 3.44 billion shares.
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