Thursday, August 26, 2010

Nikkei claws up from 16-mth lows; economy worry weighs

TOKYO: Japan's Nikkei average clawed away from 16-month lows on Thursday, Aug 26 buoyed by short-covering after falling more than 500 points over the last week, with buying of futures by long-term domestic investors also providing support.

But gains were capped by increasing uncertainty about when the government might hammer out measures to rein in the strong yen that threatens a fragile economic recovery, after news that Japanese Prime Minister Naoto Kan faces a challenge for party leadership and hence the premiership.

Market players said growing signs of global economic malaise, including disappointing U.S. housing sales data that came out on Wednesday and sent Wall Street sharply lower before U.S. indexes managed to eke out gains, were also weighing on the market.

"There are increasing signs of a slowing global economy, and on top of that you have Japan's situation where it really isn't providing policy to deal with its economic issues," said Kenichi Hirano, operating officer at Tachibana Securities.

"Otherwise, why is the Nikkei performing so poorly? As corporate earnings showed, the economy itself is not doing badly enough to warrant the current stock weakness, but the lack of clarity on the yen's strength is not good."

The benchmark Nikkei edged up 0.3 percent or 27.13 points to 8,872.52 in choppy trade, having ventured into negative territory for part of the morning session, a day after closing at a 16-month low.

The broader Topix was flat at 807.61.

Japanese ruling party powerbroker Ichiro Ozawa is likely to run in a party leadership vote on Sept. 14 in a challenge to Kan, Japanese media said, risking a bitter battle as the government struggles with the strong yen and a slowing economy.

"The fact that Ozawa has said he'll run ... means that whatever Kan might say about policy, the markets won't listen," said Norihiro Fujito, general manager at the investment research and information division of Mitsubishi UFJ Morgan Stanley Securities.

"This also means that no new policy will be able to be enacted until after Sept. 14, which will also make it hard for stocks to rise."

After four days of falls, the Nikkei looks oversold on the technical front, suggesting it might be ready for a rebound.

Its relative strength index (RSI) stood at 33, with 30 and below considered oversold, while its slow stochastic -- a measure of how oversold the market is -- was deep in oversold territory.


But foreign investors, long a key driver of Nikkei moves, remain net sellers, limiting the longer-term outlook.

Orders placed through foreign brokerages prior to the opening showed that they were set to be net sellers of stocks to the tune of 10.3 million shares, while Ministry of Finance data showed that foreign investors sold a net 39.1 billion yen ($462 million) of Japanese stocks last week.

Market players said that long-term domestic investors appear to have bought Nikkei futures on both Wednesday and Thursday, providing an additional boost to the cash market.

Shares of exporters gained, buoyed by short-covering after recent slides and as the yen pulled back slightly from a 15-year high hit against the dollar earlier this week.

Digital camera maker Canon Inc rose 0.7 percent to 3,450 yen and electronics parts maker Kyocera Corp added 1 percent to 7,170 yen. Panasonic Corp gained 1.6 percent to 1,060 yen.

Shares of Parco Co surged 5.1 percent to 645 yen after the department store said it would raise 15 billion yen by issuing convertible bonds to the state-owned Development Bank of Japan to help fund acquisitions and find new locations.

The action prompted a protest from top shareholder and major real estate developer Mori Trust, who told Reuters it may take action to block the deal as it will dilute its stake.

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