Barefoot Investor: July 2012

Japan's Nikkei share average wrestled back almost 1 percent on Thursday, lifting off a
seven-week low as investors picked up stocks on better-than-expected earnings, but the rebound was seen as limited because of concerns over global demand.

Short-covering lent temporary support for battered stocks,while strong earnings for a few U.S. firms boosted Japanese companies in the same sectors.

But Canon, which has a large proportion of its sales in Europe, plummeted as much as 13.8 percent during the session, highlighting nerves about exposure to an unstable euro zone.

"I think the market has entered a downward spiral- it's three steps back and one step forward," said Yuuki Sakurai, CEO of Fukoku Capital Management. "There's no real problem with Canon the company itself, it's down to the extremely negative
market atmosphere at the moment."

The Nikkei gained 0.9 percent to close at 8,443.10 after slumping to just 0.8 percent above its year-to-date low of 8,295.63 on Wednesday.

Hitachi Construction Machinery Co Ltd, which had been hit by worries of a slowdown in China, gained 6.2 percent after it cut its annual profit outlook less than analysts have expected. It was helped by U.S. rival Caterpillar boosting its outlook, while competitor Komatsu Ltd rose 4.5 percent.

Robot maker Fanuc gained 5.3 percent after it maintained its half-year profit outlook on Wednesday.

TDK Corp advanced 3 percent after U.S. hard drive maker Western Digital Corp's earnings beat market expectations on record sales, assuaging fears of a slowdown in
the market.

TDK's exposure to the European market, hit by dwindling demand and a weak euro, has left it 11.9 percent down this month.

After one indebted Spanish region asked Madrid for aid last week and others seemed set to follow, fears that the euro zone's fiscal problems could yet deepen have dampened share prices of companies reliant on the region for sales.

Canon was one such stock, closing 7.8 percent down at a 40-month low after trimming its group net profit forecast by 14 percent to 250 billion yen ($3.2 billion), citing a slowdown in the global economy and the persistent strength in the yen.

"The yen isn't showing any signs of weakening and could get even stronger, which would mean the blue-chips that fought back today would slump again," said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

Many blamed the yen's gain -- about two percent versus the dollar and more than six percent against the euro -- as a major factor for the Nikkei's poor performance.

So far this month, the Nikkei is down 6.3 percent, underperforming most other markets except for southern European countries. Ex-Japan Asian-Pacific shares were down 1.2 percent in the same period.

The broader Topix index clawed back 1.2 percent to 714.91, although the gain came after it had fallen for 13 of the past 14 sessions.

The market is likely to be oversold in the near-term, some market players say, after the ratio of short-selling rose to one of its highest levels in years, striking a 13-month high of 32.7 percent on Monday before dropping slightly to 31.9 percent on Wednesday.

"When we've had such a high level of short-selling in the past, the market usually rises within 20 business days, as short-sellers have to close their positions," said Jun Yunoki,strategist at Nomura Securities.

Among the battered shares that benefited from some short-covering was Panasonic Corp, with a gain of 2.7 percent on the day against a 23 percent loss on the month, and Sony Corp which recovered 4.9 percent after dropping 18.7 percent since June.

Elsewhere, Olympus jumped 9.6 percent after medical device maker Terumo said on Thursday it is proposing to invest 50 billion yen ($640 million) in Olympus and form a joint holding company.

Shares of Terumo, which is now competing with Sony in seeking a tie-up with Olympus, fell 0.8 percent.

Nomura Holdings was also lifted 5.7 percent on a report that its CEO would resign to take responsibility for the leaks on share offerings from within the company's brokerage unit.(Reuters)


China’s economic growth slowed to 7.6 percent in the three months ended June, the sixth straight deceleration, as Europe’s fiscal crisis sapped exports and a crackdown on property speculation curbed domestic demand.

Growth Target

A survey by the center of 22 domestic and foreign banks and institutions had a median forecast for third-quarter expansion of 7.8 percent.

China’s overseas sales in the first half of the year rose 9.2 percent, while imports gained 6.7 percent, putting the government at risk of missing its goal of 10 percent expansion in trade this year.
(Source: Bloomberg)

‘Effective Stimulus’

Export growth may slow in coming months, surveys of manufacturing purchasing managers indicate. A June survey released July 2 by HSBC Holdings Plc and Markit Economics showed new export orders fell at their steepest pace in more than three years while a separate index released by the government a day earlier showed overseas demand contracted for the first time since January.

Willingness to Invest

Signs of weakening domestic demand include falling factory- gate prices and softening inflation. The producer price index dropped 2.1 percent in June from a year earlier, the fourth straight decline, while consumer prices rose 2.2 percent, the smallest increase since January 2010.

The combination has lowered investment returns for Chinese industrial companies, Song said. “This is not only a problem for monetary policy, but also the willingness of companies to invest.”

Reduce Taxes

First-half profit declines at hundreds of Chinese companies may increase pressure on the government to reduce corporate taxes as part of efforts to stem the economy’s slowdown. Net income fell from a year earlier for more than half of 760 listed companies to report results, worse than in the first six months of 2009, Societe Generale SA said in a July 19 note.

Moderating inflation has given the central bank more room to ease monetary policy. It announced the second reduction in interest rates in a month on July 5 and has lowered the proportion of deposits banks must set aside as reserves three times since it started cuts in November to boost lending.


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