June 13, 2017 4:12 am JST

Market Scramble: Japan stocks may escape worst of tech tumble

US shares may face heavier risks due to Fed rate hikes, higher P/E ratios

MASAYUKI YUDA, Nikkei staff writer

TOKYO -- Japanese equities may incur relatively little damage from the technology stock sell-off begun last week, as tech shares here appear to carry less downside risk than their high-flying U.S. counterparts.

The so-called FAANG stocks -- tech titans Facebook, Amazon.com, Apple, Netflix and Google parent Alphabet -- tumbled as one Friday. The fallout Monday in Tokyo hit Apple suppliers including electronic components makers Taiyo Yuden and Nitto Denko, which sank 3% and 1%, respectively, as well as semiconductor production equipment makers Tokyo Electron and Screen Holdings, both of which slid 3%.

The Nikkei Stock Average lost about half a percentage point to finish at 19,908. Tech issues were among the few sectors driving the Japanese market, and their losses may hinder upward momentum.

The Fed effect

Apple led the sell-off after reports that some new iPhone models set for a September launch would be delayed to mid-October or November. But the history of the tech-heavy Nasdaq Composite suggests the anticipated hike in U.S. interest rates as another factor driving the drop.

When the Federal Reserve raised rates in December 2015 for the first time in nearly a decade, the Nasdaq temporarily unwound after growing steadily since around 2011. Fears of an end to a long period of easy liquidity sparked the fall.

The Fed has signaled a probable rate increase at its meeting Tuesday and Wednesday. But the central bank also appears likely to begin reducing its massive balance sheet, a move that alters the landscape compared with the periods around the past two hikes.

The Nasdaq held together in those two instances, but the additional possibility of the Fed paring its holdings might change the playbook. The present excess-liquidity rally may end, and "the Nasdaq could tumble badly as soon as the second half of this year," said Yutaka Miura, senior technical analyst at Mizuho Securities.

On Japan's end

If U.S. stocks enter a correction, it becomes "hard to picture the Nikkei average broadly surpassing 20,000," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

But share prices suggest tech fever burns hotter in the U.S. than in Japan. Netflix and Amazon have price-earnings ratios well above 100, while the P/E ratio is only around 20 for many of Japan's tech stocks.

These shares "don't have such strong growth prospects as FAANG," notes one senior strategist at Nomura Asset Management. But seen from another angle, Japan's stock prices are also rational and backed up by earnings, said Charles Gave of Gavekal Research. Their downside risk may be comparatively limited.

Taiyo Yuden Co., Ltd.

Japan

Market(Ticker): TKS(6976)
Sector:
Industry:
Electronic Technology
Electronic Components
Market cap(USD): 1,976.57M
Shares: 120.48M

Nitto Denko Corp.

Japan

Market(Ticker): TKS(6988)
Sector:
Industry:
Process Industries
Industrial Specialties
Market cap(USD): 14,012.95M
Shares: 173.75M

Tokyo Electron Ltd.

Japan

Market(Ticker): TKS(8035)
Sector:
Industry:
Electronic Technology
Electronic Production Equipment
Market cap(USD): 23,864.20M
Shares: 165.21M

SCREEN Holdings Co. Ltd.

Japan

Market(Ticker): TKS(7735)
Sector:
Industry:
Electronic Technology
Electronic Production Equipment
Market cap(USD): 3,555.75M
Shares: 50.79M

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