tokyo's nikkei set to test 7,500

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    Tokyo's Nikkei Set to Test 7,500
    Sat April 12, 2003 10:52 PM ET
    By David McMahon
    TOKYO (Reuters) - Tokyo stocks are expected to plumb new 20-year lows this week as selling by pension funds and worries about a sluggish global economy continue to hit big blue chip shares.

    "Attention has turned from the war in Iraq to the weak global economy, and investors don't like what they see," said Hiroyuki Nakai, chief strategist at Tokai Tokyo Securities.

    "I think that Sony Corp and other blue chips will continue to fall, and the Nikkei will likely test the 7,500 mark this week."

    On Friday, electronics giant Sony skidded to a four-year low of 3,770 yen, partly on selling by corporate pension funds, who are taking advantage of rule changes that allowed them to return part of their pension assets to the state later this year.

    Heavy selling helped push the benchmark Nikkei average down 3.19 percent for the week to 7,816.49, its lowest close since January 1983. Analysts said it would likely move between 7,500 and 8,000 this week.

    Traders said caution ahead of quarterly earnings statements by heavyweights such as Intel Corp and Microsoft Corp in the United States -- both due on Tuesday -- would further dampen incentives to trade for Japanese investors.

    "The numbers will likely confirm that the immediate outlook for the global tech sector is quite bleak," said Norihiro Fujito, senior strategist at Mitsubishi Securities.

    "I'd say they'll trigger a decline in U.S. tech issues and Japanese exporters will follow them down."

    Fumiaki Sato, analyst at Deutsche Securities in Tokyo, said in a recent note to clients that the U.S. Nasdaq and semiconductor indices still had potential downside of around 20 percent. He believes prices will likely bottom in June to July.

    The Nasdaq retreated 0.5 percent on Friday to end the week down 1.78 percent, while the Dow shed 0.22 percent to end the week 0.89 percent lower, as concerns over the U.S. economy and earnings marred surprisingly strong readings on retail sales and consumer sentiment.

    Japan's reporting season moves into full swing later in April, when giants such as Sony will report full-year earnings.

    PENSION FUNDS DUMP SHARES Traders said that this week investors were likely to continue to steer clear of blue chips such as Sony, Fuji Photo Film Co. Ltd., and Toyota Motor Corp, who are among the most widely held issues by the pension funds.

    Some said the fears were somewhat overdone.

    "In reality, I don't think the current slide has been driven by actual corporate pension fund sales. Foreigners are selling and there are speculators at work on which stocks pensions will sell," said Morgan Stanley strategist Naoki Kamiyama.

    Kamiyama predicts that corporate pension funds will unload more than four trillion yen worth of stock in the first half of the business year to September 30 before the state begins accepting assets in cash or securities in October this year.

    That is equal to around seven times the average daily value of shares traded on the Tokyo bourse. Traders said worries about the pension funds were creating a vicious circle of selling as investors dump shares, fearful of further falls.

    Among the biggest winners last week were sectors such as communications and electric power and gas. Telecom issues such as NTT DoCoMo Inc., and utilities like Osaka Gas Co. Ltd., are among those analysts deem as relatively immune to pension selling.

    Some fund managers said they regarded the dumping of shares by pension funds as a good opportunity to buy on the cheap.

    "I think the next week or so could be rough for the market, but after that attention should return to the fact that corporate earnings in Japan are holding up strong," said Akio Yoshino, general manager at SG Yamaichi Asset Management.

    Yoshino said he would be steering clear of tech issues, but regarded now as a good opportunity to buy stocks in materials industries such as steel, chemicals, pulp and paper.

    "Thanks to aggressive restructuring and price rises due to solid demand in Asia, companies in these industries are able to increase profits even if sales growth is stagnant," he said.
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