Japan's start-up stock market plunge could pressure small-caps (updated)
03/08/2017 08:51
* TSE Mothers futures trading volume hits record highs
* "Could be the canary in the coal mine" - fund manager
* Foreign and domestic players appear to take profits
* "Mothers is the world's riskiest market" - analyst
(Adds graphic)
By Tomo Uetake
TOKYO, Aug 3 (Reuters) - Japan's stock market for start-up
firms plunged to two-month lows this week as investors pulled
money out of the risky and inflated market, raising concerns the
broader stock market could also see some spillover.
The Tokyo Stock Exchange's Mothers start-up market saw its
main index .MTHR plummet this week, marking a loss of almost
10 percent from a one-year peak hit in June.
Trading in futures on the Mothers Index JMIc1 , which had
been mostly dormant since their inception in July last year,
suddenly spiked to a record high of about 4,700 lots on Tuesday,
more than 10 times larger than the daily average of about 390.
The main stock market has so far been relatively untouched
by the sell-off, with the benchmark Nikkei .N225 staying above
the 20,000 level it scaled in June.
Yet, fund managers and analysts suspected the Mothers market
is facing pressure from selling by hedge funds and foreign
investors, who expect a sharp downturn. And further selling
could spill over to smaller companies on the main board .TOPX .
"This time, something is different. Because we Japanese day
traders don't use the Mothers futures much, if not at all, I
suspect it's foreign players," said Naoki Murakami, a
professional day trader who focuses on start-up shares. "I'm
going to sit on the sidelines until the storm passes."
The Mothers Index - an acronym for Market Of The High-growth
and Emerging Stocks - comprises biotech and internet ventures
and other small-caps.
On average about 150 billion yen ($1.4 billion) worth of
shares change hands a day, or about 3 percent of the market's
value, compared with less than 0.5 percent on the main board.
The index, which was closely correlated with the U.S. Nasdaq
technology share market .IXIC during the 2008 global financial
crisis, had risen 28 percent in the year to June, better than
the Nasdaq's 18 percent and the Nikkei's 5 percent gains during
the same period.
Some traders said profit-taking on Mothers appeared to be
driven in part by the sudden fall in high-flying U.S. tech
shares last week.
"There was market talk that some small- and mid-cap fund
managers sold stocks last Thursday to take profits. That
triggered selling on the Mothers," said Tetsuo Inoue, CEO of
Spring Capital.
"Mothers is the world's riskiest market, riskier than
Chinese markets. It's like a fireworks festival - the rocket
flies high and gives spectacular explosions and then pauses
-then it repeats," he said.
Some traders are worried that further selling in Mothers
could prompt a sell-off of small cap shares on the main board as
well. Smaller firms such as EM Systems 4820.T already appear
to have succumbed to the selling pressure.
"Investors are nervous and eager to take profits in anything
that has risen ahead of September, when the Fed begins the
process of balance sheet normalisation," said a veteran Japanese
fund manager, referring to expectations the U.S. Federal Reserve
could soon begin reducing the massive monetary stimulus in place
since the financial crisis.
"In a way, this could be the canary in the coal mine.
Investors have been too complacent for so long," he said ,
adding that he shorted some Mothers names on Tuesday, Wednesday
and Thursday.
Retail traders have been spooked, online comments showed.
"The Mothers market is dying. Everybody run!" wrote one
investor who goes by the name "Niagara man."
"Are we in a bottomless pit or something?" wrote another
investor with the name "Millionaire investor."
($1 = 110.6600 yen)
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Japan's Mothers Index http://reut.rs/2hnfbFv
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(Editing by Jacqueline Wong)
((tomo.uetake@thomsonreuters.com; +81 3 6441 1645; Reuters
Messaging: tomo.uetake.thomsonreuters.com@reuters.net))
Keywords: JAPAN STOCKS/MOTHERS