June 20, 2014 4:04 am JST

High-tech issues on Mothers outshine mundane Jasdaq cousins

MASANORI ITO, Nikkei staff writer

TOKYO -- As Japanese stocks stage a comeback, retail investors continue to pour money into trend-setting high-tech issues on the Tokyo Stock Exchange's Mothers market. But excessive enthusiasm is already raising concerns about overheating.

     On Thursday, the Nikkei Stock Average touched its highest level in four and a half months. But as the index's upturn slowed in the afternoon, trading of startup stocks quickly gained speed. In fact, three of the 10 stocks with the highest trading values that day were startups.

     Robotic device maker Cyberdyne ranked No. 2, with a trading value of 91.5 billion yen, despite a market capitalization of only 124 billion yen. While its share price fell Thursday, it still stands more than 60% higher compared with the end of May.

     Weighed down by heavy spending on research and development, the company is projected to bleed red ink on a net basis in the year through March 2015. But many investors have bought into the narrative that its wearable robotic suits will become ubiquitous in the health care field.

     Social networking site operator mixi and biotechnology company euglena were also on the list of top 10 issues in terms of trading value. But their profits are lackluster, with the stocks' projected price-earnings ratios far higher than the market average, an indication of overheating.

     These shares are all on the Mothers market, whose index has risen more than 40% over the past month -- leaving the Jasdaq startup market in the dust.

     While Mothers has many Internet-related companies and biotechnology businesses, widely seen as growth fields, Jasdaq is home to more traditional businesses such as restaurant operators. "Mothers tends to draw investment from individuals because it has many companies specializing in growth fields," said Tomoichiro Kubota, senior market analyst at Matsui Securities.

     Retail investors have been net sellers on the Jasdaq but net buyers on the Mothers market.

     The performance of newly listed stocks also confirm the two markets' divergent paths. While more than 70% of the stocks that listed on the Mothers market this year and last saw their opening quotes at least double their initial public offering prices, less than half of new Jasdaq stocks made such spectacular debuts.

     Since the Japan Exchange Group was created last year, Mothers has solidified its position as a steppingstone for an eventual listing on the TSE's first section, attracting many promising companies, says an official at the group. Before the merger, Jasdaq and Mothers competed against each other to court promising startups.

     Some individuals are shifting money from Jasdaq to the Mothers market, bolstering the latter and drawing even more retail investors to it. But it is unclear whether this trend will continue. Osamu Tokuno at Invesco Asset Management (Japan) said investors "could well switch to selective buying based on the quarterly earnings announcements in July."

     Some Jasdaq stocks lingering at bargain prices may get a second look if they show steady earnings growth.