Bloomberg News

Tokyo Small-Cap Stocks Post Longest Win Streak in Half Century

February 27, 2012

Feb. 22 (Bloomberg) -- Small Tokyo-listed companies posted their longest streak of advances in more than 50 years as government spending on rebuilding from the March 11 earthquake and tsunami boosts domestic-related stocks.

Japan’s TSE Second Section Price Index, a capitalization- weighted measure of smaller companies at the Tokyo Stock Exchange, added 0.9 percent to 2,329.15 at the 3 p.m. close. 2The gauge rose for a 27th day, the longest streak ever, according to data compiled by Bloomberg dating back to 1961.

Kagetsuenkanko Co., a resort manager that gets all of its sales in Japan, climbed 48 percent today, the biggest advance on the gauge. Shares of the Yokohama-based company, valued at 1.4 billion yen ($17.5 million), have risen 229 percent since Jan. 16, leading gains during the winning streak. Takasago Tekko K.K., a metal products manufacturer affiliated with Nippon Steel Corp., surged 75 percent in the period.

“The biggest factor supporting domestic-focused shares is reconstruction demand,” said Masaru Hamasaki, who helps oversee the equivalent $24 billion as chief strategist at Toyota Asset Management Co. in Tokyo. “Recent gains are mainly driven by an adjustment in valuations as investors recognize how cheap these shares are.”

Small companies that make most of their sales domestically have benefited from about 20 trillion yen in supplementary government spending to stoke demand and rebuild after last year’s disaster.

Second Section

Companies on the Tokyo bourse’s second section are required to have at least 800 shareholders and a market value of 2 billion yen, bourse spokeswoman Yukari Hozumi said by telephone yesterday. For inclusion in the first section, home to Toyota Motor Corp. and Canon Inc., companies must have no fewer than 2,200 shareholders and market capitalization of 50 billion yen.

The number of second-section shares bought through margin accounts rose yesterday to the highest since the earthquake, data compiled by Bloomberg shows.

Tsuchiya Holdings Co., a home builder, advanced 53 percent to 162 yen this year. Kirayaka Bank Ltd., a regional lender in the Tohoku area affected by the disaster, has surged 68 percent to 124 yen. The bank’s earnings rose by 97 percent in the nine months through December, the company said on Feb. 10.

Even after advancing 10 percent this year, shares on Tokyo’s small cap index trade at an average of 0.69 times book value. That compares with 1.2 times for the Topix Index, Japan’s broadest equities gauge. A number below one means that companies can be bought for less than value of their assets.

‘Broad-based Rally’

Still, Japan’s smaller firms have risen less than measures tracking exporters and bigger companies because investors are wary of buying shares that can’t easily be sold, according to Edwin Merner, president of Atlantis Investment Research in Tokyo, who manages $300 million.

“Even if you see some stocks you like, that are cheap and with fundamentals looking OK, you won’t go there because liquidity isn’t good,” Merner said. “This is a broad-based rally. The buying is going everywhere, mostly into medium-size and bigger stocks and some of the smaller first market stocks.”

The Topix Index of the 1,668 largest companies on the Tokyo Stock Exchange has advanced 13 percent since Dec. 30, hitting a six-month high today. Shares surged about 6 percent since last week when the Bank of Japan expanded bond purchases by 10 trillion yen expansion, weakening the currency. The yen slipped today to 80.08, the weakest against the dollar since Aug. 4.

Tokyo’s second section has a market capitalization of 1.47 trillion yen, less than 1 percent of the Topix index’s 179 trillion yen. Toyota’s value of 11.7 trillion yen is about eight times bigger than the combined market capitalization of the 426 companies on the second section.

Some 2.4 billion shares traded hands today on the Topix, compared with 43.5 million on the smaller gauge.

“Japanese stocks have lagged behind other global markets, and stocks on the second section of the Tokyo Stock Exchange have lagged the most,” said Hiroyuki Uekusa, general manager of trading at Meiji Yasuda Asset Management Co. “Investors generally don’t look at these stocks, but when these neglected stocks in the second section start to move, they keep going.”

--With assistance from Masaaki Iwamoto in Tokyo. Editors: Jason Clenfield, Jim Powell.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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