Topix Erases Christmas Day Losses With Biggest Gain in Two Years

(Bloomberg) -- Japanese shares rose for a second day, erasing the losses from Christmas Day, as the Topix index posted its biggest advance in two years.

The broader benchmark and the Nikkei 225 Stock Average were bolstered by gains in electronics makers after U.S. stocks staged one of the biggest rallies of the 9 1/2-year bull market as holiday sales kicked off in earnest. The Topix has climbed 6.1 percent in the past two days after dropping 4.9 percent on Christmas Day. Japan has one more day of trading tomorrow before a four-day holiday next week.

The resurgence follows a global equity rout in the wake of renewed turmoil in Washington that dragged Japanese stocks into a bear market earlier this month. The MSCI Asia Pacific Index rose 2 percent in afternoon trading in Tokyo for its biggest advance in eight weeks. Crude oil prices jumped over 8 percent on Wednesday.

“Year-end shopping demand is robust, a sign that the U.S. economy is still on a solid growth track,” said Mitsuo Shimizu, an equity strategist at Aizawa Securities Co. in Tokyo. “The panicky feeling in markets has receded. When corporate earnings are put into perspective, I can only say that Japanese shares are way too cheap.”

Market participants, who unanimously agree local equities are inexpensive valuation-wise, are cautiously forecasting the rebound could stay largely intact in the New Year. Kiyoshi Ishigane of Mitsubishi UFJ Kokusai Asset Management Co. expects buying to persist for two to three weeks despite possible “ups and downs.”

Topix Erases Christmas Day Losses With Biggest Gain in Two Years

Technical indicators have been signaling markets have been oversold. The 25-day Toraku index, which compares the numbers of advancing and declining stocks on the Topix, stood at about 68 on Wednesday, remaining under 80 for seven straight days, a level at which traders consider that shares are due for a rebound. The Topix trades at about 11.8 times estimated earnings, near the cheapest level since 2012.

For the chief executive officer of the nation’s second-biggest brokerage, the worst is probably over for Japanese stocks as long as the global economy avoids slipping into a recession. “It is probably rational to think that prices have reached the bottom,” Daiwa Securities Group Inc.’s Seiji Nakata said in an interview, a day after the Nikkei 225 Stock Average slid into a bear market.

Still, not everyone is convinced that Thursday’s rally could last.

“Stocks fell too much until now,” said Kazuyuki Terao, chief investment officer for the Japan unit of Allianz Global Investors. “The concern surrounding corporate earnings will linger quite a bit. I don’t think we’re entering a phase where stocks are set for a rebound from here. There’s quite a bit of concern surrounding cyclical sectors like technology companies and machinery” for both the U.S. and Japan.

By at least one measure, the day’s surge has already pulled Japanese equities out of oversold territory. The relative strength index on the Topix was around 38, above the 30 mark for the first time in five days. A level below 30 indicates to some investors that the market may be poised to rise.

Topix Erases Christmas Day Losses With Biggest Gain in Two Years

Summary

  • Topix +4.9% to 1,501.63 at the close in Tokyo, with all 33 industry groups rising and 2,089 gainers vs. 11 losers
    • Gauge climbed 1.1% yesterday after plunging 4.9% on Tuesday
  • Nikkei 225 +3.9% to 20,077.62
  • Yen +0.2% at 111.19 per dollar

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