Nikkei edges up after weak start on optimism over banks

Tue Jan 29, 2013 1:52am GMT

* Banks benefit from report of bumper earnings
    * iPhone fills out KDDI forecast
    * HSBC cuts Japan rating, but BNP sees 13,000 for index

    By Sophie Knight
    TOKYO, Jan 29 (Reuters) - Japan's Nikkei share average rose
on Tuesday morning, buoyed by optimism over earnings of major
banks after initially opening lower on profit-taking.
    The index briefly pierced a 32-month high of 11,000 on
Monday.
    Sumitomo Mitsui Financial Group (SMFG) rose 5.2
percent, while Mizuho Financial Group and Mitsubishi
UFJ Financial Group (MUFG) added 2.9 and 4.4 percent,
respectively, with all three in the top-four most traded stocks
on the mainboard by turnover at mid-morning.
    The Nikkei newspaper said the recent stock market rally
would boost the banks' shareholdings and net profit for the
current financial year. 
    A positive outlook for mobile carrier KDDI Corp,
which lifted its full-year forecast by 1 percent to 505 billion
yen ($5.57 billion) as contracts for smartphones have increased
faster than expected, propped the stock up 3.6 percent. 
 
    By mid-morning, the Nikkei was up 0.8 percent at 10,905.21. 
    "I think earnings are going to be pretty weak, but most
companies are going to get ignored as most people are looking
forward to improvements in the yen," said a hedge fund manager
who declined to be named.
    The yen has slid around 10 percent over the past two months,
signalling improved profits for exporters whose overseas
revenues will increase once repatriated. It firmed against the
dollar on Monday to 90.5 versus the greenback.
    "There are going to be some bombs, and that will be greeted
negatively, but there's a decent amount of names people are
waiting to buy once the bad news clears out, so I think it will
be better for the markets," the hedge fund manager added. 
    Maeda Corp tumbled as much as 13.4 percent to a
10-week low after the contractor forecast an operating loss of 7
billion yen, down from a previous estimate of 5.2 billion yen
profit, citing deteriorating profit margins.
    "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 outlooks on Japan. While BNP
Paribas has raised its target for the Nikkei to 13,000, 19.8
percent higher than its current level, HSBC shifted Japan back
to "underweight" 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, said Garry Evans, global head of
equity strategy at HSBC, in a note on Monday.
    The BOJ announced a 2 percent inflation target at its last
policy meeting on Jan. 22 and committed to buying open-ended
assets, but only from 2014, which disappointed some investors
that were hoping for more immediate action. 
    Societe General, however, pointed to the heat around
emerging 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. 
    "In Japan, the Nikkei 225 was essentially flat after the
much anticipated announcement from the BOJ proved a bit of a
damp squib. However the Mothers index of small cap companies
continue to fly...yet no one really seems to have noticed," said
a Societe General note.
    The Mothers index, or the "market of the high-growth
and emerging stocks", has risen 48 percent so far this month and
has packed on 72 percent since a low struck in early June 2012. 
    By mid-morning, the broader Topix was up 0.9 percent
at 922.12.
    Despite the recent rally, the benchmark remains well below
the 2008 financial crisis while the S&P 500 Index and
Germany's benchmark stock index have both already exceeded that
level.
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