Tokyo shares on Tuesday snapped a three-day losing streak in which the market slid 3 percent, as hedge funds covered short positions and as foreigners bought back on cheap valuations, a factor that, some say, may support the market in coming weeks. Hedge funds such as commodities trading advisors were detected piling back into the market after offloading substantial amounts of shares on Monday, a move triggered by a tumble in the shares of troubled Tokyo Electric Corporation, traders said.
Long-term foreign investors placed large-lot orders for a combined 10 billion yen for 20-25 blue chip companies and 4 billion yen in mid- and small-caps, two market sources said, boosting overall confidence in the market and further bolstering its afternoon rebound. Toshiba Corp climbed after industry sources told Reuters that it and Sony Corp are in talks to combine their small and mid-size liquid-crystal display (LCD) panel units into a new entity to boost their competitiveness.
"The market lost 340 yen in three days and hedge funds are now covering their short positions," said Takashi Ohba, a senior strategist at Okasan Securities. "Both foreigners placing large-lot orders and margin traders scooping up small-caps are attracted by cheap valuations, and buying by those players may give some support to the Nikkei in the next few weeks," he said.
By contrast stocks in the benchmark S&P 500 are at about 2.1 times book value, according to ThomsonReuters Starmine. This makes Tokyo equities the second cheapest market in the G20, with Italy being the only cheaper market, ThomsonReuters Starmine showed. Japan's benchmark Nikkei average closed up 0.7 percent at 9,442.95 and the broader Topix also gained 0.7 percent to 813.76.
Short-covering in utilities and buying on dips of defensive shares helped the market stay above a key support of 9,317 - a March 29 intraday low - although fears of a slowdown in the US economy sparked by a string of weak data are likely to prevent immediate big gains. The next solid resistance looms around 9,573.26, at the bottom of the Ichimoku cloud on the Nikkei's daily chart. Tokyo Electric, known as Tepco, advanced 4.4 percent to 216 yen, while Kansai Electric Power added 2.0 percent to 1,226 yen.
The pharmaceutical sector outperformed, with Astellas Pharma adding 1.5 percent to 3,095 yen and Eisai rising 0.7 percent to 3,045 yen. Shares of Sony fell 1.5 percent to 2,031 yen after hackers calling themselves Lulz Security said they had broken into its computer systems again and posted the results on the Internet. Toshiba gained 3.0 percent to 409 yen on the news about the LCD partnership with Sony.
Shares of Canon Inc fell the most in more than 2 months, shedding 2.6 percent at 3,745 yen after the office equipment and camera maker announced on Monday that it had completed its planned buyback of 50 billion yen worth of its own shares between May 26 and June 3. Volume was a touch lighter, with 1.76 billion shares changing hands on the main board, less than last week's daily average volume of 1.88 billion shares. Advancing shares outnumbered declining shares by 1,086 to 407.