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Nikkei buoyed by short-covering in post-quake losers

Published 04/07/2011, 03:04 AM
Updated 04/07/2011, 03:08 AM
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* Estimating earnings 'more art than science' -Goldman Sachs

* Near-term outlook bearish, investors jittery about lost output

* Toshiba down 2.3 pct as Macquarie cuts price target

* Volume lightest since the quake as uncertainties weigh

By Chikafumi Hodo and Antoni Slodkowski

TOKYO, April 7 (Reuters) - Short-covering in energy and domestic-demand stocks gave the Tokyo market a nudge higher on Thursday after two days of declines, but trade thinned out with investors jittery ahead of earnings announcements.

Market players said the Nikkei average is poised for a gradual slide over the next few months as some firms enter the first earnings season since last month's quake unwilling to give forecasts for this financial year.

Reasons for caution include power shortages, lost production and lack of progress by Tokyo Electric Power Co in bringing its stricken nuclear plant under control.[ID:nL3E7F7015]

The benchmark Nikkei closed up 0.1 percent or 6.56 points at 9,590.93, while the broader Topix index gained 0.2 percent to 841.10.

Trading volume fell to its lowest level since the quake, with the total number of shares changing hands on the bourse's main board at 2.2 billion, well below elevated post-quake levels.

"Estimating fourth-quarter earnings this season will be more art than science given that many companies themselves don't yet know what charges they will take in Q4 given damage related to the quake/tsunami," said Goldman Sachs said in a report on the Japanese steel sector.

"We expect most (steel) companies will not provide guidance for the financial year to March 2012," the brokerage said.

Worries about the quake's impact on earnings have outweighed a recent slide in the Japanese currency to near an 11-month low of 122.55 yen to the euro and a half-year low of 85.54 yen against the dollar .

Looking long term, Barclays Capital has said it expects companies listed on the TSE's main board to post on average a fall of 12 percent in net profit for this financial year compared with its pre-quake forecast of a rise of 14 percent.

CORRECTIVE BUYING

Chubu Electric Power Co , Kansai Electric Power Co and Tokyo Electric Power were the biggest gainers on the Nikkei and the most actively traded shares.

Chubu and Kansai both jumped over 5 percent, but are still down some 15 percent since the quake, while Tokyo Electric rose 0.9 percent, after having plummeted 84 percent since March 10 to hit a record low of 292 yen on Wednesday on worries about huge compensation claims related to the disaster at its Fukushima Daiichi nuclear plant.

"It was about time to see some corrective buying, with investors who have gone short this week covering their positions ahead of tomorrow's SQ," said Takashi Ohba, a senior strategist at Okasan Securities, referring to Friday's settlement of options, known in Japan as the special quotation.

Foreign investors were net buyers of Japanese stocks last week, and local market participants were keen to see if they would continue to buy them in the longer run.

Overseas investors shifted back to net buying of Japanese equities to the tune of 144.7 billion yen ($1.69 billion) in the week to April 2, after having sold a net 13.2 billion yen the prior week, according to government data.

"Even though foreigners bought the Nikkei last week, it seems that this week hedge funds and short-term players are moving to more volatile markets that are posting record gains, such as Russia, Thailand and Korea," said Takashi Ushio, head of the investment strategy division at Marusan Securities.

"Speculators, who also contributed to the Nikkei's post-quake rebound, are now shifting to commodities such as oil and gold, as they are hitting record highs," Ushio said.

Between March 13 and 19, the week right after the quake and tsunami, foreigners logged record net buying of Japanese equities of more than 890 billion yen.

TOSHIBA DOWN

Shares in electronics conglomerate Toshiba Corp , slipped 2.3 percent to 381 yen after Macquarie Securities cut the firm's target share price to 500 yen from 575 yen after the shares took a hit as the nuclear crisis in Fukushima unfolded, but kept its "outperform" rating.

"We believe that Toshiba's shares have been hit more by an adverse turn in sentiment surrounding the nuclear-related business due to the Fukushima incident, than by any fundamental deterioration in its business," the brokerage's Damian Thong said in a note to clients.

Toshiba is among the 10 biggest post-quake losers out of the 225 Nikkei components, shedding some 24 percent since March 10 -- the day before the quake -- and underperforming the benchmark index, which after three weeks since the disaster still hovers some 8 percent below its early March levels.

Elsewhere, Elpida Memory jumped 2.7 percent to 1,092 yen after the company said it had developed a 4-gigabit DRAM chip for smart phones, joining bigger rival Samsung Electronics as the only producers of the large capacity power-saving memory chip for smart phones. [ID:nL3E7F702H] (Editing by Michael Watson)

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