Japanese Stocks Seen Falling Next Week; Retailers May Slip on Low Earnings
Tokyo, Oct. 25 (Bloomberg) -- Japanese stocks may fall next
week as the nation's gloomy economic prospects spur domestic
institutions to sell into the benchmark's seven-percent rally,
shedding lenders such as Industrial Bank of Japan, Ltd. and
retailers including Daimaru Inc.
Economic indicators to be released this week -- including
September's unemployment and industrial production figures, and
department and chain store sales -- will likely deflate market
sentiment.
''The continued ongoing deterioration of the economy could
pull the market lower this week,'' said Celia Farnon, an equity
saleswoman at Nomura Securities Co. ''Retail numbers are
appalling and unemployment is going from bad to worse...and as we
go into results season the earnings will be bad at best, quite
likely disastrous.''
The benchmark Nikkei 225 stock average rose 6.5 percent, or
854.16 points, to 14,144.70 this week. It could fall as low as
13,500 this week, Farnon said.
Short Sale?
The market's gains were due in part to foreign investors
buying back shares before new short-selling restrictions were put
into place last Friday.
Short selling refers to borrowing and selling stock in
anticipation of a price drop. Investors are now required by law
to tell their brokers whether or not a sale is a short sale.
According to most interpretations of the new rules, short
sellers cannot sell below the previous day's close or at what
becomes a new intraday low.
Moreover, if the custodian broker has lent out one's stock
it still must be declared a short sale. That rule may yet be
changed by the TSE, traders said.
Concern that the new regulations were at once obscure and
punitive led some institutions that had lent out securities to
call back their stock, driving clients who had sold them short to
buy back the shares to return them to the owners.
Foreigners turned net buyers of Japanese equities in the
week ending Oct. 16 for the first time in eleven weeks.
In addition, a bit of government support for the market in
advance of the world's second-biggest initial public offering, of
NTT Mobile Communication Network Inc. -- better known as DoCoMo -
- shored up the market for the new offering's first trading day
on Thursday.
''We had a technical rally based on short covering ahead of
the new rules and the successful IPO of DoCoMo,'' said Barry
Dargan, managing director of Massachusetts Investment Management
Co., which handles $1 billion in Japanese equities. ''None of
those things is really sustainable.''
Bank shares among the biggest gainers in the past five days,
with the Topix Banking Index climbing 15 percent, will likely
slide as domestic institutions unload blocks of cross-
shareholdings while the Nikkei is still floating above the 13-
year lows touched just three weeks ago.
''Their inclination must be to sell into the rally created
by the gaijin (foreigners),'' said Nomura's Farnon. ''The
temptation must be very great to unwind cross-shareholdings at
considerably more attractive prices than they would have gotten a
few weeks ago.''
Even news that eleven of Japan's biggest lenders are
interested in accepting part of the 60 trillion yen ($503
billion) government bailout package will likely not sustain gains
as investors bet that government money may pull banks back from
the brink but it doesn't make them profitable.
''Having excess funds on the balance sheet is good for (the
banks), but not enough to make you want to buy them,'' said
Massachusetts Investment's Dargan.
Moody's Investors Service said it may cut its ratings on
four leading banks -- including Japan's biggest lender, Bank of
Tokyo-Mitsubishi Ltd. -- as well as Sanwa Bank Ltd., Sumitomo
Bank Ltd. and Industrial Bank of Japan Ltd. on concern economic
conditions in Japan and the rest of Asia are worsening.
Moody's downgrade of retailers Daimaru and Matsuzakaya Co.'s
long-term ratings -- already junk status -- after last Friday's
market close may weigh on retailers.
Corporate earnings season kicks into gear this week with the
world's biggest consumer electronics maker, Matsushita Electrical
Industrial Co., and the second biggest, Sony Corp., reporting
half-year earnings. Any disappointment on the earnings front
could depress an already vulnerable market, traders said.
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