Nikkei edges up on short-covering, oil prices eyed

Wednesday, 9 March 2011 00:01 -     - {{hitsCtrl.values.hits}}

TOKYO, (Reuters) - Japan’s Nikkei benchmark edged higher on Tuesday as investors covered short positions after sharp losses the day before, but future gains are likely to be hard-won due to concerns about the Middle East and oil prices.

 Two major deals were applauded by investors with Hitachi gaining on the sale of its hard disk drive operations to Western

Digital for about $4.3 billion, while Terumo Corp) climbed on its purchase of U.S. medical device firm CaridianBCT for $2.6 billion. Despite a rise of around 20 percent in U.S. oil prices over the last two weeks, Japanese stocks have so far proved largely resilient, and the Nikkei added 1.6 percent last week as investors reassessed risk within their equities portfolios instead of moving out of stocks altogether.

 “If oil stays in a $100-$120 per barrel range for around half a year the global economy could see a severe slowdown, pushing investors away from stocks, so everything depends on the Middle

East now”, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

 “Shares of exporters such as automakers are being pressured by higher oil prices. At the same time it’s also hard to buy stocks tied to domestic demand due to political turmoil, with lack of trust in the government undermining the mood of consumers.”

 A member of parliament from Japan’s ruling party called on Tuesday for Japanese Prime Minister Naoto Kan to step down as soon as possible, Kyodo news agency said, as pressure grows on the unpopular premier to resign or call a snap election.

The benchmark Nikkei ended the day up 0.2 percent, or 20.17 points, at 10,525.19. The broader Topix index shed 0.3 percent to 939.16.


Hitachi Ltd gained 1.8 percent to 514 yen in heavy trade, while Terumo Corp jumped 3.2 percent to 4,640 yen.

 “We view the announced sale of the HDD business as extremely positive for Hitachi,” Shinji Harada, an analyst at Citigroup

Global Markets Japan, wrote in a note to clients.

 “(The terms of the deal) are good and it is a complete sale, eliminating the potential for problems down the road,” he said.

 Hitachi shares trade at a 33 percent discount to the average forward 12-month price to earnings multiple of its peers, according to Starmine’s SmartEstimate. The estimate gives higher weightings to historically accurate and more recent forecasts.

 Analysts said that M&As, buybacks and other corporate activities, which have picked up steam in Japan in recent weeks, will support the benchmark in what could be volatile trade before the settlement of Nikkei futures and options this Friday.

 “The market’s fundamentals are recovering on corporate earnings so sentiment longer term is good. But for the short term, the market may see some correction due to continuing worries about developments in the Middle East,” said Hajime Nakajima, deputy general manager at Cosmo Securities.

 He said support for the Nikkei is seen at its January closinglow of 10,237.

 Tech shares followed their U.S. counterparts lower after

Wells Fargo downgraded the semiconductor sector. The Nasdaq composite index dropped 1.4 percent on Monday.

 Toshiba Corp fell 0.8 percent to 514 yen and Sony

Corp (dropped 0.6 percent to 2,908 yen.

 Shinsei Bank surged 6.3 percent to 119 yen in active trade after it set the price of its new stock offering for overseas investors at 108 yen per share, a 3.6 percent discount to Monday’s closing price of 112 yen.

 Volume was moderate with 2.2 billion shares changing hands on the Tokyo exchange’s first section, in line with last week’s average daily volume.