Japan’s Technology Stocks Are Having a Surprisingly Good Year

(Bloomberg) -- Japan’s technology stocks are having a surprisingly good 2019 even as trade tensions have escalated between the world’s largest economies.

Well-known internet and telecom giants Rakuten Inc. and SoftBank Group Corp. are doing especially well, closing the first half with gains of 74% and 41% respectively. The pair are riding expectations for their global investments as well as hopes for their domestic operations.

Lesser known nut-and-bolt tech manufacturers also feature in the top gainers on the Nikkei 225 Stock Average, which is up 6.3% year to date. On the flipside, stocks that benefit from domestic demand, including drugmakers, retailers and utilities, have been among the biggest losers on the blue-chip gauge.

The broader Topix index has mustered only a 3.8% advance in 2019, making it the worst performer this year among 24 advanced markets tracked by Bloomberg, as foreigners desert Japanese stocks amid U.S.-China trade tensions.

Here are some of 2019’s best and worst stocks in the world’s third largest stock market:

Rakuten Inc. (up 74%)

• The Nikkei’s top stock of the first half of 2019 has benefited from expectations ahead of the launch of its mobile phone network scheduled for October, aided by government efforts to bolster competition in the industry.
• Rakuten also saw market debuts this year by two of its major investments, Lyft Inc. and Pinterest Inc.

SoftBank Group Corp. (up 41%)

• Masayoshi Son’s flagship has overcome a drag from a decline in Lyft peer and fellow 2019 debutante Uber Technologies Inc. for the Nikkei’s third-best performance in the past six months.
• It has benefited from a gradual improvement in how the market evaluates the investments of its $100 billion Vision Fund, as well as the possibilities of it launching an IPO and a second equally sized vehicle being created.
• Meanwhile, SoftBank has restructured its investment in Yahoo Japan Corp. and may finally be getting close to shedding the albatross of its stake in Sprint Corp.

Hitachi Ltd. (up 35%)

• Investment restructuring has also been a key theme for Hitachi, which continues to shed stakes in listed subsidiaries.
• That should help the parent company focus on its core businesses including its Lumada IoT platform, for which there is high expectations.

Not-so-famous Tech

It’s not just the larger, sexier tech names that have gained in 2019. The Nikkei 225’s top 10 also includes Yaskawa Electric Corp. (up 36%) and Advantest Corp. (up 32%) -- key players in Japan’s prized factory automation and semiconductor production equipment industries. These stocks have weathered global threats of tariffs and blacklists amid hopes for business recovery later this year.

Defensive Slump

While tech has outperformed, Japan-focused sectors have suffered. Utilities have dropped more than any other Topix industry group in 2019, hurt by rising fuel costs and continued issues over nuclear regulation. Higher oil prices have also crimped transportation companies such as Yamato Holdings Co., which is down 28% year to date. FamilyMart UNY Holdings Co. (down 26%) and Seven & i Holdings Co. (down 24%) are both among the Nikkei 225 worst performers as convenience stores grapple with investments in new technologies and higher personnel costs amid Japan’s severe labor shortage.

Drugs: Some Good, Some Bad

As the market snubs defensive sectors, pharmaceuticals stocks have shown mixed performances. Sumitomo Dainippon Pharma Co. (down 42%,) and Eisai Co. (down 28%) are the top two blue-chip losers after disappointing drug trials. Meanwhile, peer Daiichi Sankyo Co. (up 61%) ranks second-best on the Nikkei, boosted by a cancer treatment tie-up with AstraZeneca Plc.

To contact the reporter on this story: Kurt Schussler in Tokyo at kschussler1@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Joanna Ossinger

©2019 Bloomberg L.P.