Japan: Nomura's March Indiv. Investor Survey; Most-Watched Japanese Stocks

The results of Nomura’s Individual Investor Survey [pdf] for March show sustained positive sentiment that reappeared in last month's survey after a four month hiatus, but there's also a more cautious outlook, rightfully so.

Nomura issues and closes the survey on the same day, this time on Feb. 22, which happens to be only two trading days ahead of the global sell-off that began in China.

In its current survey, Nomura comments that it thinks "investor sentiment remains strong," but also says it thinks "investor sentiment may be peaking out, with investors feeling some caution about the recent rise in share prices."

At that time, Japan's benchmarks, the Nikkei 225 Stock Average and the TOPIX 1st Section, were trading at multi-year highs, nearly seven years in the case of the N225 and over 15 for the TOPIX.

See the end of this post for a list of the most-watched stocks.

In last month's summary of Nomura's survey I wrote there was resistance at 17,500 for the N225. It actually went on to trade up to 18,200, but it fell to the 16,600s yesterday after five straight days in the red, nearing a 10% correction. (See chart below)

Good news however, for bulls and those looking for a break from the selling. The N225 is up today by around 200 yen, or 1.2% in afternoon trading, as the yen is also weaker against the dollar by about 1% at ¥116.45/$1.

For the past two months, I noted that after reviewing Nomura’s I-View Index (a gauge of indiv. investor sentiment associated with its monthly surveys), it looked like almost every time individual investors were low on optimism, stocks actually rallied (with the reverse also true). As investor sentiment improved for last month's Nomura survey, the Nikkei was stalled somewhat, having temporarily lost its upward momentum.

Despite the newness of the survey (launched last April) it appears the trend will hold, with Japanese stocks in correction mode the past week, as individual investor sentiment continues to rise, according to the latest Nomura survey. What will be interesting to watch is how Tokyo recovers -- how much and how fast. Domestic individual and institutional investors will play a key role, because overseas investors may be in a risk reduction mood over the near-term.

Some takeaways from the latest Nomura survey include:

Most Appealing Sectors:

• Materials (ranked 3rd last month)
• Autos & Auto Parts (2nd)
• Pharma & Healthcare (1st)

Least Appealing Sectors:

• Electricity & gas (ranked 3rd last month)
• Resources (same)
• Construction & Real Estate (1st)

Nomura's feature question for this month's survey asked whether individual investors thought the Bank of Japan would raise rates again this year and how many times. The BoJ had just raised rates to 0.50%, from 0.25%, the day prior to the survey. 55.6% of respondents chose "one rate rise." Nomura notes that when adding in respondents who said 2 or 3 times, the total number expecting a rate hike was 78.9%.

Most-watched Stocks (top-10):

• Toyota (TM)
• Nippon Steel (JP: 5401)
• Sony (SNE)
• Tokyo Electric Power (JP: 9501)
• Softbank (SFTBF)
• Kagome (JP: 2811)
• Nintendo (NTDOY)
• Takeda Pharma (JP: 4502)
• Japan Airlines (JP: 9205)
• Canon (CAJ)

*ADR honorable mentions:
• Mizuho Fin. Grp. (MFG)
• Nippon Telegraph & Telephone (NTT)
• Sharp (SHCAY)
• Mitsubishi UFJ (MTU)
• Honda (HMC)
• NTT DoCoMo (DCM)
• Matsushita (MC)

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