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Markets

Tokyo stocks weather trade war for best finish since 1990

Thin trading hints at uncertainty as banks and automakers lag

The Nikkei Stock Average rallied in the second half of 2019 to its highest year-end close since Japan's economic bubble burst. (Photo by Arisa Moriyama)

TOKYO -- The Nikkei Stock Average concluded the final trading day of 2019 at its highest year-end level in nearly three decades, after a year in which interest rate cuts around the world buoyed asset prices.

The benchmark index closed at 23,656.62 on Monday, down 181.10 points from Friday but up 18% for the year for the highest finish since 1990. Total market capitalization of the Tokyo Stock Exchange's first section came to 655 trillion yen ($5.98 trillion).

The rally defied the U.S.-China trade war and other factors that sapped investor confidence and sank turnover to a seven-year low. Though uncertainty about the global economy hampered at-risk industries such as autos, market players see the recent partial trade deal between the two countries brightening the picture for 2020.

Among companies valued at 1 trillion yen or more, chipmaking equipment manufacturer Advantest saw the sharpest rise in its market cap, which roughly tripled to 1.23 trillion yen. The company won investor attention due to its testing devices for 5G smartphones.

Peer Tokyo Electron's valuation jumped about 90%. TDK, which produces multilayer ceramic capacitors for 5G base stations, enjoyed a 60% increase.

Investors rewarded Hitachi's efforts to trim fat -- including the planned sale of subsidiary Hitachi Chemical to Showa Denko -- with a 60% rise in its market cap. The valuation of Hitachi High-Technologies topped 1 trillion yen for the first time this year on speculation that the company also could move out from under Hitachi's umbrella.

But companies battered by scandal were shunned. Japan Post Insurance's valuation sank roughly 30% for the year amid a furor over improper policy sales, while parent Japan Post Holdings suffered a 20% drop. Nissan Motor, which has struggled to get back on track after the arrest last year of longtime leader Carlos Ghosn, declined 30%.

Some sectors fared markedly better than others, based on the Nikkei average's industry subindexes. Precision instruments gained around 50%, while electric machinery climbed more than 30%. The autos and auto parts index rose only 6%, and banking slid 1%, as the trade war left investors cautious about the outlook for the economy.

This wariness manifested in Tokyo Stock Exchange turnover data. Annual trading on the bourse's first section slumped to 512 trillion yen, the lowest since 2012, before the launch of Prime Minister Shinzo Abe's Abenomics program.

Eighty of the 100 largest companies by market cap saw trading decline by value in 2019, including Toyota Motor and Nippon Telegraph & Telephone.

"Investors turned bearish and held off on trading," said Takashi Hiroki, chief strategist at online brokerage Monex, citing a lack of clarity over issues such as the long-running U.S.-China trade talks.

Some analysts see factors inside Japan at play. Overseas investors were turned off by "sources of uncertainty in the domestic economy, such as the October consumption tax hike," said Takeo Kamai, head of execution services at CLSA.

That stocks rallied despite little improvement in the real economy raises concern as well. The U.S. Federal Reserve and the European Central Bank both cut interest rates during 2019.

This month's "phase one" trade deal between Washington and Beijing has fueled hopes of renewed economic growth in 2020. But many market watchers argue that laggard industries such as autos will need to perform better in order for Japan's stock market to maintain its upward momentum.

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