During many years, and 2011 has been one such year, the Tokyo stock market seems like a geriatric ward whose residents grow weaker, frailer, and more infirm by the day, and where at yearend the prognosis is further deterioration.
Granted, 2011 was extraordinary in visiting upon Japan a series of major, unprecedented disasters and difficulties: the 3.11 Northeastern earthquake/tsunami; the Fukushima nuclear accident; prolonged financial crisis in Europe; massive flooding in Thailand; and—through it all—an historically strong yen.
But even if 2011 was annus horribilis for the First Section of the Tokyo Stock Exchange (TSE), 2010 was not much better, and it is not hard to imagine that 2012 could be more of the same, or worse. The obviously question is: Is this market a classic contrarian “smart money” trade? Many foreign “investors” have in fact entered this trade, being the biggest net buyers of Japanese equities over the past six months. Domestic investors—institutions and individuals—have increasingly given up on the market—setting a “new” (actually old) trend of saving rather than investing–causing TSE First Section trading volume to drop to multi-year lows (see chart at left from the December 26 Nihon Keizai Shimbun).
The December 31 Nihon Keizai Shimbun ran the numbers for market capitalization of TSE First Section listed stocks at yearend 2011 compared with yearend 2010. Overall, the market capitalization of the listed firms—Japan’s blue chips—declined 17 percent in yen terms to JPY 255 trillion, the lowest level since 2002. By this year’s end only 47 individual companies on the TSE were able to boast market caps over JPY 1 trillion (USD 13 billion), 13 fewer than at yearend 2010. Nomura Holdings (NYSE: NMR), JFE Holdings (OP: JFEEY), Fuji Film Holdings, and Mitsui Real Estate all dropped below JPY 1 trillion market value. The company with the largest market cap, Toyota Motor Corporation (NYSE: TM), at JPY 8.8 trillion, having lost over JPY 2 trillion in value over the year—as also did Honda (NYSE: HMC)– left the TSE without a single company valued at over JPY 10 trillion (USD 130 billion), a result not seen for nineteen years.
Among the many huge market value blue chip losers during 2011 (the biggest loser, Tokyo Electric Power (OP: TKECY), lost over 90 percent of its value), there were a few winners. These were, of course, “special cases.” Japan Tobacco (NASDAQ-OTCF: JAPAY) gained a total of JPY 615 billion (USD 8 billion) market value, the most of any listed company. The reason was the news that its major shareholder—the Japanese government—would be forced to sell a substantial portion of its shareholdings to fund Northeast disaster aid, and that the buyer was likely to be JT itself, raising the prospect of increased share dividends for remaining shareholders.
At 2011 market close, the top twenty TSE companies by market value (in yen trillions) were: 1. Toyota (8.8); 2. NTT Docomo (6.2); 3. NTT(5.2); 4. Mitsubishi UFJ Financial Group (4.6); 5. Canon (4.6); 6. Honda (4.3); 7. Japan Tobacco (3.6); 8. Nissan (3.1); 9. Sumitomo Mitsui Financial Group (3.0); 10. Fanuc (2.8); 11. Takeda Pharmaceuticals (2.7); 12. Mitsubishi Corp. (2.6); 13. Softbank (2.5); 14. Mizuho Financial Group (2.5); 15. KDDI (2.2); 16. Mitsui & Co. (2.2); 17. JR Eastern Japan (2.0); 18. Seven & I (1.9); 19. Denso (1.9); 20. Hitachi (1.8).
Looking at sectors, the biggest losers in 2011 were electric power and gas stocks, down some 44 percent (as at December 22). The second biggest losers were non-bank financials, including securities firms, down some 35 percent. Here the symbolic leader—being Japan’s last standing global player—was Nomura, whose stock touched 223 yen on November 24, a humiliating and—for shareholders–punishing descent from its bubble era April 1987 peak of 5990 yen. The third worst performing sector was steel and non-ferrous shares, whose drop reflected prospects of much weaker growth in the BRICs. Fourth, down some 30 percent, were electric equipment and precision machinery shares, a sector where competition from Korea and China is driving down margins and market share. Real estate, banks, and autos follow in performing worse than the TOPIX average, which itself was down over 20 percent year-on-year by December 22. Only retail and food sectors were flat or slightly positive YOY.