TOKYO -- Retail investors' confidence in the outlook for Japanese shares is waning, their shrinking bets on higher prices indicate, with relatively well-performing domestic-market-focused stocks bearing the brunt of this retrenchment.
Long margin trading positions on the Tokyo and Nagoya stock exchanges fell to the lowest in more than three years in volume terms last week -- 3.35 billion shares, down 117 million from the week before. By value, the total dropped to 2.52 trillion yen ($22.5 billion), the lowest since April 2013, the Tokyo Stock Exchange reported Tuesday.
Compared with Jan. 8, when long positions stood at slightly more than 4 billion shares, they have fallen around 700 million shares. The Nikkei Stock Average bounced back sharply last week, regaining more than 1,000 points. Such rebounds encourage long investors to close out their positions or lock in profits, said Tomoichiro Kubota, senior market strategist at Matsui Securities.
A gauge of unrealized profits or losses on long margin positions dipped to the worst level in roughly seven years on Feb. 12. "Finding themselves badly out of pocket, many individuals hurried to sell at a loss," said Masaki Motomura, strategist at Nomura Securities.
Retail investors were particularly eager to abandon domestic-demand-driven companies. Among the biggest percentage decliners in long positions since the end of last year were discount shop operator Don Quijote Holdings and Tokyo Disney Resort operator Oriental Land.
That might seem odd, since Oriental Land reported its best-ever profit for the nine months ended December and has had a buoyant stock price. But "with the overall market tone worsening, many investors tried to lock in profits soon on shares that held their value well," said Yoshinori Ogawa, strategist at Okasan Securities.
Retail investors' increasing bearishness owes to a combination of foreign and domestic factors: the prospect of rising U.S. interest rates, economic trouble in China and other emerging markets, and the uncertain impact of the Bank of Japan's negative-rate policy, to name a few.
A Nomura index that tracks retail investors' outlook for stock prices three months ahead fell for the first time in four months in February. The index is calculated by subtracting the proportion of survey respondents thinking that stocks will decline from the proportion expecting gains.
Judging by this unease and the unrealized losses they have sustained, retail investors appear likely to continue unwinding long equity positions for a while. This will depress demand at a time when buyers, foreign and domestic, are already scarce.
But in volume terms, long margin positions have already shrunk down to the level of December 2012, the starting point of the Abenomics rally. This suggests that underwater positions have already been closed out to a considerable extent and that selling pressure from this segment of investors is likely to ease gradually.