Nomura's Individual Investor Survey for January

The results of Nomura’s Individual Investor Survey [pdf] for January are not exactly bullish, but considering the Nikkei’s year-end rally, perhaps this is understandable since some investors will be looking to lock in profits.

Note, it was the third straight monthly decline and the lowest sentiment rating since Nomura launched the survey last April. However, after reviewing Nomura’s I-View Index for the past ten months, it looks like almost every time individual investors are low on optimism, stocks actually rally.

This was true during the run up last spring before the broad sell-off and it was true after the market bottomed during summer, and yet again it is proving true as the Nikkei finished the year strong.

I would mostly ignore this development, although it is a warranted case of cautious optimism by individual investors. Herd mentality is in full force in Japan and that explains a sort of snow ball effect where once it becomes known that foreigners are selling (for instance), then everyone seems to head for the exits as they take profits. This also explains the extraordinary triple digits gains and losses that would probably result in a permanent alert box on CNBC if it were the U.S.

Some takeaways from the latest Nomura survey include:

Most Appealing Sectors:

• Pharma & Healthcare
• Autos & Auto Parts
• Materials

Least Appealing Sectors:

• Construction & Real Estate
• Financials
• Resources

Most-watched Stocks:

• Toyota (TM)
• Sony (SNE)
• Tokyo Electric Power
• Nintendo (NTDOY.PK)
• Softbank (SFTBF.PK)
• Nippon Steel
• All Nippon Airways
• Japan Airlines
• Takeda Pharma
• Kagome

*ADR honorable mentions:
• Canon (CAJ)
• NTT DoCoMo (DCM)
• Matsushita (MC)
• Sharp (SHCAY.PK)
• Honda (HMC)
• Mitsubishi UFJ Fin. Grp. (MTU)

My Comments:

I would advise some caution with auto stocks because when the Bank of Japan raises rates again, maybe as early as this month (18th), the knee jerk reaction is to go long yen (even though it will only be a 0.25% hike to 0.50%) and simultaneously sell blue-chip exporters. The question is how heavy the selling will be (maybe look for an entry point or add to a position).

To make matters worse, the charts of Toyota and Honda show nice gains over the past year and especially over the past six months and from December (see chart below). A stronger yen will be reason enough to take profits, while citing the lower value of repatriated overseas profits.

Click to enlarge chart

That said, there’s no doubt Toyota and Honda will trade higher throughout the year and likely finish at new all-time highs. But, I would suggest considering Nissan (NSANY), which struggled from an operations standpoint in ’06, but its stock still made decent gains.

Lastly, I wanted to mention I found “financials” being listed as a top-3 "least appealing sector" in the survey to be interesting considering the sector’s underperformance in ’06. I actually like the mega-banks here -- Mitsubishi UFJ (MTU) and Mizuho FG (MFG) -- and even think it’s worth considering the beaten down consumer lenders as a trade.

Disclosure: The author owns iShares Japan call options. The author is not long/short any stocks mentioned in this article.

Comments

[William L. ...:]

Thanks a lot for posting this. Good article.

2007 Jan 10 07:21 AM