February 22, 2012 / 7:45 AM / 6 years ago

China PMI lifts Nikkei to highest level in six months

TOKYO (Reuters) - Japan’s Nikkei share average rose 1 percent on Wednesday to its highest in six months, boosted by news that China’s manufacturing sector rose to a four-month high in February although it remained in contraction territory.

The graphs of various market indices are displayed on an electronic board outside a brokerage in Tokyo February 15, 2012. REUTERS/Yuriko Nakao

The HSBC flash purchasing managers index, the earliest indicator of China’s industrial activity, rose to 49.7 in February from 48.8 in January. The PMI has been below 50, which demarcates expansion from contraction, for most of the last eight months.

The Nikkei closed at 9,554.00. The benchmark has faced stiff resistance at the 9,500 level for the past two sessions.

Shoji Hirakawa, chief strategist at UBS, said expectations of monetary easing by major central banks would boost equities and Japanese stocks, which have a low book value, tend to outperform in such situations.

“The index is trying to break the 10,000 mark as early as March,” he said, adding that if not, it would reach close to that level.

The Nikkei China 50 index, comprising 50 Japanese stocks with significant exposure to China, climbed 0.8 percent after ending the morning session 0.3 percent lower.

Komatsu Ltd (6301.T), which sells more than 20 percent of its construction machinery in China, pared losses, up 0.6 percent to 2,425 yen. It ended morning trade lower at 2,371 yen.

Automakers extended gains after the PMI data, with Nissan Motor Co (7201.T) up 2.3 percent, Toyota Motor Corp (7203.T) adding 1.8 percent and Honda Motor Co (7267.T) gaining 2.1 percent.

After the bell, Mazda Motor Corp (7261.T) said in a regulatory filing that it would raise up to 162.8 billion yen in a public share offering. The offering would cause a 68.5 percent dilution of its existing shares, according to a Reuters calculation.

Mazda shares closed up 1.4 percent after shedding 10 percent on Tuesday on reports of the fundraising. Sources told Reuters it planned to raise up to 100 billion yen through the offering.


A weaker yen also raised the appeal of exporter shares, as the dollar traded above 80 yen for the first time since August.

“The 80-yen level is extremely important for sentiment and now that it’s managed to exceed that level, we’ll see steady gains for equities,” said Fumiyuki Nakanishi, general manager of investment and research at SMBC Friend Securities.

“There is also the launch of several toshin funds (investment trust funds) later this month, which will spur buying so we could see the Nikkei reaching 9,700 by the end of the month,” he said, adding that investors were buying Nikkei March call options at 10,000 1JNI100C2.OS.

The broader Topix advanced 1.1 percent to 825.40, with nearly 2.44 billion shares changing hands, up from 2.38 billion the previous session.

According to Thomson Reuters Datastream, the Topix carries a 12-month forward price-to-book ratio of 0.91, much cheaper than S&P 500’s 1.94 times and STOXX Europe 600’s 1.35.

Deutsche Bank on Tuesday raised its 12-month Topix target by 4.5 percent to 930 from 890, representing an upside of 12.7 percent from Wednesday’s close.

Wednesday’s afternoon rally also lifted Sony Corp (6758.T), Panasonic Corp (6752.T) and TDK Corp (6762.T). They climbed between 0.6 and 2.3 percent.

The Nikkei is up 8.5 percent this yearn on the back of strong economic data out of the United States, the European Central Bank’s liquidity injection of nearly half a trillion euros and further easing steps by the Bank of Japan.

If the index were to end the month with the current gains, it would be the best February performance since 1991.

Editing by Nick Macfie

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