Japan: Nomura's October Individual Investor Survey

The results of Nomura’s Individual Investor Survey [pdf] for October (released earlier this month) show a worsening of sentiment despite many responses of expectations of a modest rising of share prices over the next quarter, due to investors continued concerns about the U.S. subprime loan problem.

Nomura closed its survey on September 25, at which time the Nikkei 225 was trading around 16,400, slightly higher than where it was a month prior. Since the survey closed, the Nikkei has gained about 1,000 points, or around 6%.

Declines in sentiment per Nomura's survey have historically coincided with significant gains for the Nikkei 225 benchmark (a contrarian indicator). Based on the current month's survey, there is a double-bottom reading for sentiment, and an ongoing uptrend for the Nikkei.

Market participants, however, are divided between those who say Japanese equities look cheap on valuation and as laggards in the broader Asia rally, against those who say expected sustained yen weakness will limit foreign investor bullishness, thus capping any rally based on the aforementioned factors.

Nikkei 225 Stock Average chart as of Friday's (10/12) close:

Extracts from October's survey:

Most Appealing Sectors:

1. Resources (not among "most/least-3" last month)

2. Materials (second "most" last month after 7-consecutive months at #1)

3. Pharmaceutical & Health care (second "most" last month)

[Machinery, Shipbuilding & Heavy Machinery fell out of the top-3 after ranking second-"most" last month.]

Least Appealing Sectors:

1. Financials (also first "least" last month)

2. Construction & Real Estate (also second "least" last month)

3. Electricity & Gas (not among "most/least-3" last month)

[Autos & Auto Parts fell out of the top-3 after ranking third-"least" last month.]

In its monthly feature question, Nomura asked investors about their outlook for domestic politics (considering PM Abe resigned suddenly on Sept. 12) and the likely impact on stock and forex markets. The most common response was for a "neutral" impact on both stock and forex markets, followed by "negative" for stocks and a "weaker yen" in terms of forex. Nomura says nearly 83% of respondents indicated expectations of a lower-house dissolution resulting in a general election, with the subsequent impact expected to be generally "negative" for stocks and "yen-weakening" for forex.

Most-watched Stocks (top-10):

1. Toyota (TM)(JP: 7203)
2. Nintendo (NTDOY.PK) (JP: 7974)
3. Sony (SNE) (JP: 6758)
4. Tokyo Electric Power (JP: 9501)
5. Nippon Steel (JP: 5401)
6. Komatsu (JP: 6301)
7. Sharp (SHCAY.PK) (JP: 6753)
8. Canon (CAJ) (JP: 7751)
9. Mitsubishi Corp. (JP: 8058)
10. Oriental Land (JP: 4661)

*ADR honorable mentions:
• Softbank (SFTBF.PK) (JP: 9984)
• Toshiba (TOSBF.PK) (JP: 6502)
• NTT DoCoMo (DCM) (JP: 9437)
• Nissan (NSANY) (JP: 7201)
• Mizuho Fin. Grp. (MFG) (JP: 8411)
• Honda (HMC) (JP: 7267)
• Mitsubishi UFJ Fin. Grp. (MTU) (JP: 8306)
• Matsushita Elec Ind (MC) (JP: 6752)

Disclosure: The author does not own shares of any companies mentioned in this article.