Anticipation of higher earnings in fiscal 2014 is buoying Japanese electronics stocks, with Hitachi, Panasonic, and many others outstripping their own 2013 market performance in the new year.
On Wednesday, 178 issues on the Tokyo Stock Exchange's first section rose to their 2013-2014 highs. Seiko Epson jumped 6% to the highest level since September 2008. Nidec rose 3%, its best showing since February 2006. Hitachi climbed for six consecutive business days, and Panasonic notched a seven-day winning streak. Fujitsu, Mitsubishi Electric, Murata Mfg. and Yokogawa Electric were also among the top gainers.
The growth of major electronics stocks since the end of November has topped the Nikkei Stock Average's 2.9% increase. Seiko Epson shot up 21% over this period, while Fujitsu, Mitsubishi Electric and Hitachi grew 17.2%, 13.5%, and 12.8%, respectively.
Leading electronics shares are driving the overall Nikkei rally as the sector's combined market capitalization grows in proportion to all stocks on the TSE's first section. At the end of August, the electronics and automotive sectors each accounted for some 11% of the first section's total market cap. Now, electronics firms make up 12%, while automotive firms have shrunk to around 10%.
Investors are encouraged by the earnings prospects at electronics companies for the year starting April 1. Many of the firms that have surged since the end of November are expected by analysts to log double-digit operating profit growth next fiscal year.
In the case of Panasonic, for example, Masahiro Ono at Morgan Stanley MUFG Securities says "the firm is building the wherewithal to put money into growth fields, and as companies regain their appetite for investment, (Panasonic's) business with automotive and other firms will likely grow as well."
For Hitachi, the effect of its restructuring after logging a major loss is the likely reason for optimism. "Many firms are undergoing major transformations after poor business performances," said Shinobu Yonezawa, a senior quantitative analyst at Mizuho Securities Research & Consulting.
In QUICK Corp.'s diffusion index covering security analysts' outlooks on corporate earnings for next fiscal year, the electronics sector strengthened between November and December, while the automotive sector weakened.
"Investors who had reduced their holdings (of electronics shares) are now taking a second look them as a type of stock sensitive to global economic trends," said Mamoru Shimode, chief strategist at Resona Bank.
With car sales expected to be weighed down by the upcoming consumption tax hike, the automobile sector's growth will be limited for the short term, said an official at a foreign asset management firm, adding that some investors are shifting funds from automotive to electronics shares.
