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Stocks

SoftBank tops Japan Inc. for market cap gain in 2016

Aggressive growth push wins investors' hearts

Masayoshi Son

TOKYO -- SoftBank Group outpaced big Japanese companies in market capitalization growth this year, making headlines with bold steps toward future growth and capturing the hearts -- and wallets -- of risk-tolerant investors.

The telecommunications conglomerate's market cap rose 16%, or 1.17 trillion yen ($10 billion), over the past year to 8.54 trillion yen. The increase was the biggest in value terms among all shares on the Tokyo Stock Exchange's first section. The aggregate market cap of the section fell 2% to 571 trillion yen.

Taking the offensive

Hideyuki Ishiguro, senior strategist at Daiwa Securities, attributes the group's ascent to "management on the offensive," which involves risk-taking investments for future growth.

SoftBank announced a stock repurchase program in early 2016, and in July revealed plans to buy U.K. chip designer ARM Holdings. The company then said in October it would create a technology investment fund of up to $100 billion with a Saudi Arabian state-backed fund. In December, CEO Masayoshi Son met with U.S. President-elect Donald Trump and offered to create jobs in America.

SoftBank shares, which hit a 2016 low of 4,133 yen in February, have risen as far as 8,068 yen in December. The gains show investors willing to take risks from the early stages of new projects.

Besides SoftBank, game company Nintendo's market capitalization jumped by 1.10 trillion yen, or 46%. Companies thriving on unique technologies and business models also attracted investors. Shin-Etsu Chemical, whose North American polyvinyl chloride business is strong, rose from No. 35 to No. 24 in market cap ranking.

Industrial equipment maker Keyence surpassed Canon in market cap by capturing demand for factory automation.

Ebb and flow

In the first half of the year, Japanese stocks largely faced selling pressure due to the strong yen and ultralow interest rates. Investors snapped up undervalued issues focused on the domestic market.

The tide shifted with the U.S. presidential election in November and the sharp decline of the yen. With more money flowing into Japanese shares glowing with growth potential, companies with robust North American operations drew cash on hopes for policies touted by Trump.

But market caps shrank this year for many "old economy" stocks such as automobiles and machinery. Toyota Motor lost 2.55 trillion yen in market cap, though it remained the Japanese leader for a 15th straight year. Honda Motor and Nissan Motor each shed more than 800 billion yen.

Though many of these stocks have rebounded, Fanuc and others particularly vulnerable to economic cycles have not fully regained lost ground. The stock fell sharply in the first half amid the strong yen and concerns over stagnation in emerging economies.

Domestic-focused Japan Post Holdings and Japan Post Bank each lost over 1.5 trillion yen in market cap this year.

"Their heavy reliance on investment in Japanese government bonds spurred earnings concerns in light of low interest rates," said Fumio Matsumoto, senior fund manager of Dalton Capital Japan.

Market cap declined for all of Japan's megabank parents: Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group.

Trading value on the TSE's first section totaled 643 trillion yen in 2016, down 8% on the year, but still the fourth-highest annual tally on record. With the Bank of Japan increasing its buying of exchange-traded funds, ETF trading rose to a record 61.53 trillion yen.

(Nikkei)

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