Japan’s Topix Rises in Longest Streak in 4 Years; Honda Surges

By Masaki Kondo

July 30 (Bloomberg) -- Japan’s Topix index rose for a 10th day in its longest winning streak in four years after Mitsubishi Electric Corp. reported a narrower-than-expected quarterly loss and Honda Motor Co. boosted its annual profit target sevenfold.

Mitsubishi Electric, which made scoreboards for the Dallas Cowboys football stadium, surged 15 percent. Nissan Motor Co. jumped 10 percent after a first-quarter loss was narrower than analysts had estimated. Honda, Japan’s No. 2 automaker, soared 8.7 percent as cost reductions contributed to the higher earnings outlook. Sumitomo Metal Mining Co. sank 3.9 percent after first-quarter profit fell and oil and metals prices slid.

The Topix added 6.58, or 0.7 percent, to close at 936.94 in Tokyo, marking its longest stretch of gains since August 2004. The Nikkei 225 Stock Average added 51.97, or 0.5 percent, to 10,165.21, its highest close since Oct. 6. While both gauges advanced, about five stocks fell for four that rose.

“Positive earnings surprises are supporting the market,” said Hiroshi Morikawa, a senior strategist at Tokyo-based MU Investments Co., which manages the equivalent of $13 billion. “Cost cuts are rational actions for individual companies but they are reducing somebody’s revenue and diminishing demand, which will eventually lead to a deeper economic slump.”

Mitsubishi Electric surged 15 percent to 710 yen, posting the steepest jump on the MSCI World Index, followed by Nissan and Honda. The company today reported a first-quarter net loss that was less than half analyst estimates.

Nissan, Japan’s No. 3 automaker, gained 10 percent to 694 yen. It posted a first-quarter net loss that was less than a third of analysts’ projections.

Valuation Concerns

Honda, whose estimated price-to-earnings ratio reached 100, surged 8.7 percent to 3,010 yen and was the most actively traded stock by value in Tokyo. The company raised its operating profit forecast yesterday, after markets closed, to 70 billion yen ($737 million) for the year to March 2010, citing cost cuts. Nomura Holdings Inc. lifted its rating on the carmaker to “buy” from “neutral.”

Rising valuations have some investors questioning whether earnings prospects can justify current share prices. Fifteen percent of Nikkei-listed shares trade at more than 50 times estimated net income, compared with 5 percent for the S&P 500, according to Bloomberg data.

“The absolute level of profit is still low. Unless earnings continue to recover, current valuations can’t be justified,” for Honda said Mitsushige Akino who oversees the equivalent of $631 million at Ichiyoshi Investment Management Co. “With sales unlikely to grow, the success of cost cuts and business restructuring divide winners and losers.”

Sony Speculation

Sony Corp., maker of the PlayStation 3 game machine, soared 6.8 percent to 2,505 yen. After the close of Tokyo stock trading, the company reported a first-quarter net loss that’s less than half analysts’ projections.

“Earnings reports from automakers were seen as precursors for good results from electronics makers, including Sony, and prompted short-sellers to unwind their positions on those shares,” said Ayako Sera, a strategist at Sumitomo Trust & Banking Co. in Tokyo, which manages $266 billion in assets.

Sumitomo Metal, the nation’s No. 1 nickel producer, slid 3.9 percent to 1,392 yen. First-quarter net income plunged 78 percent as prices for copper and nickel fell. Nippon Oil Corp. lost 2.9 percent to 502 yen after cutting its full-year profit target. Nippon Mining Holdings Inc., its merger partner, sank 2.5 percent to 466 yen.

NEC Electronics Corp., Japan’s fourth-largest chipmaker, plummeted 5.3 percent to 967 yen, breaking a seven-day winning streak. A first-quarter net loss widened 16-fold from a year earlier, the company said yesterday after markets shut.

Nikkei futures expiring in September rose 0.9 percent to 10,200 in Osaka and added 1.7 percent to 10,205 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.