Japan: Best and Worst Performing ADRs Last Week

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Includes: NIS, NJ, NMR, SNE, TMICY
by: Steven Towns

Market sentiment improved in Japan last week as stocks had obviously been oversold, with Japan's benchmarks having fallen further than China's during the sell-off. At any rate, the yen carry trade is alive and well at this point and Japanese exporters were among Japanese ADRs that recovered some of their recent losses.

On average, the 28 Japanese ADRs that are listed on the NYSE or trade on the Nasdaq returned 0.6% last week compared to -3.8%, +0.5% and +4.2% over the three weeks prior.

60% of Japanese ADRs finished the week higher, compared to only 3 of 28 (~11%) two weeks ago.

See the chart below for weekly and 2-week returns.

The five best performing ADRs:

    1. Sony (NYSE:SNE) 6.2%
    2. Mitsui & Co. (OTCPK:MITSY) -5.0%
    3. Nomura (NYSE:NMR) 4.8%
    4. ORIX (NYSE:IX) 3.4%
    5. Toyota (NYSE:TM) 3.1%
        Advantest (NYSE:ATE) 3.1%

The five worst performing ADRs:

    1. NIS Group (NIS) -6.2%
    2. Nidec (NYSE:NJ) -4.9%
    3. Konami (NYSE:KNM) -4.6%
    4. Trend Micro (TMIC) -3.9%
    5. TDK (TDK) -3.8%

Disclosure: The author owns shares of NIS Group and IIJ and also owns IIJ call options.

Click to enlarge chart

JP-ADR-wkly-2wk-return-03-12-07

From the chart above one will notice Sony recovered its highs of two weeks ago and seems to remain popular among investors despite its high price-to-earnings ratio. Recently there have been bullish comments by JP Morgan, Goldman Sachs and Barron's.

Nomura (NMR) also made a comeback last week but remains down nearly 8% compared to where it traded two weeks ago. Nomura, somewhat like Sony, is another case of a stock gaining a little too much, too fast. However, investors appear to remain bullish given robust trading activity, especially among domestic investors, who were net buyers as foreigners were net sellers during the recent sell-off. I continue to think Nomura offers nice upside over the long term, as I said late last year. Near term however, is anyone's guess.

On the opposite side of the spectrum one can see certain stocks continue to be sold, such as Nidec (NJ), Konami (KNM), Trend Micro (TMIC) and TDK (TDK). I happen to think all these are worth a look. What appears to be the case is foreign investors are not showing much interest and therefore, their shares don't have much to move them higher, aside from analyst upgrades and financial revisions (which still doesn't ensure gains can be held). Trend Micro actually revised its financials upward last month, but it has since given back all its gains.

NIS Group (NIS) was the worst performer over the past week. I continue to maintain a long position and expect it will hold higher price levels over time. It is basically a "penny stock" in Japan due to questionable stock splits and I believe it is mistakenly associated (solely) with consumer finance lenders even though it has a large exposure to lending to SMEs.

Overall, we see Japanese ADRs as a whole have yet to recover their levels of two weeks ago, at which time the Nikkei 225 Stock Average was trading at a 6+ year high and the TOPIX was at a 15+ year high. The yen weakened to 118 to the US dollar today, easing some concerns of an unwinding of the carry trade. A weaker yen by the way, is beneficial to Japanese exporters and their ordinary shares (when considering the repatriation of profits), but limits gains (expands losses) for their ADRs.