TOKYO -- Shares with bright earnings prospects for this fiscal year drove the Japanese market rally Tuesday amid a shortage of appealing issues.
The Nikkei Stock Average surged 349.16 points, or 2.15%, to 16,565.19 as the yen weakened against the dollar.
Shares of Tosoh soared 13% right after the chemical company's fiscal 2015 results were released at 2 p.m. Algorithm-based programs that factored in Tosoh's statements quickly traded the stock, completing 20% of the issue's Tuesday transactions in just three minutes.
Tosoh was part of a group of stocks that jumped Tuesday. Kyowa Exeo climbed 16.7%, Eizo gained 14.3% and Kanematsu rose 7.9%. These companies all released earnings projections for this fiscal year Monday or Tuesday that beat the analyst consensus.
With the heightening risk of lower pretax profits at listed companies this fiscal year, investors are desperate to buy stable, low-risk stocks. Shima Seiki, PanaHome and Fujitsu General have been advancing since they posted through May 2 forecasts that topped analyst estimates.
Company forecasts are unlikely to exceed analyst projections this earnings season because analysts have yet to modify their estimates to reflect the yen's sudden appreciation of late and the quickly cooling global economy. Businesses also tend to issue conservative views at the beginning of a year, and the climate is particularly tough this year with the yen's strength and the cloudy overseas economic outlook.
Company projections typically surpass analyst estimates in 30-40% of cases, Mitsubishi UFJ Morgan Stanley Securities said. But the ratio stands in the 10% range this year.
Just 16% of companies topped analyst estimates by 2% or more as of Monday, a Daiwa Securities tally showed. Investors generally shy away from those that fell short of a market consensus, and the proportion of businesses that do not release forecasts has risen to 14%. As a result, "investors tend to flock to a handful of issues that they feel comfortable buying," said Masahiro Suzuki, Daiwa's senior quantitative analyst.
The trend also indicates concern about a dour outlook. U.S. corporate earnings are not expected to improve until the third quarter. Until then, "Washington is likely to prefer a weak dollar, so the pressure for the yen to appreciate is not going anywhere this year," said Takashi Ito, equity market strategist at Nomura Securities.
Trading house Mitsubishi Corp. jumped Tuesday after releasing results, surging 4% at one point. Trading companies suffered severe earnings setbacks, but now that they have posted their earnings, there appear to be few selling incentives in the offing. The question for the market is whether investors' buy targets will start to include these and other stocks.
"Companies with conservative forecasts that have factored Chinese economic risks to an excessive degree are a buy," said Keita Kubota, investment manager at Aberdeen Asset Management. One big task for investors this year may be to identify companies that are likely to earn more than what they project now.