Nintendo stock surge proves investors still happy to take risks
SoftBank also attracted buyers eager to bet on the next big thing
TOKYO -- A sudden spike in trading of Nintendo shares this summer illustrated how investors remain eager to take big risks for a chance at big rewards.
The game giant's stock soared July 20 ahead of the much-anticipated Japanese launch of its "Pokemon Go" smartphone game, amassing a staggering 732.3 billion yen ($6.22 billion) in trades, a single-day record for any issue in Japan. Nintendo stock alone made up nearly 30% of all transactions on the Tokyo Stock Exchange's first section that day, far surpassing the 62.1 billion yen in trading for second-place SoftBank Group. Toyota Motor was a distant third at 43.8 billion yen.
Prior to the heavy trading, Nintendo's price had more than doubled from 14,585 yen a share at the end of June to 32,700 yen on July 19.
Individuals seeking short-term profits were not the only players trading the stock. Nomura Securities' Junko Yamamura was swamped with inquiries about whether the Kyoto-based company would become a game changer for the industry.
Masamitsu Oki, a director and chief portfolio manager at Fivestar Asset Management, unloaded Nintendo shares when they reached the 30,000 yen range to take profits and then bought them again. "Considering the value of the company's characters," such as Pokemon and Mario from the "Super Mario" franchise, "the stock has the potential to climb to 50,000 yen to 60,000 yen," Oki said.
SoftBank was another hot growth stock of 2016. The telecom company in July announced a deal to buy U.K.-based chip designer ARM Holdings and unveiled plans in October for a $100 billion tech fund with Saudi Arabia's sovereign wealth fund. These megaprojects excited investors despite a lack of business specifics.
After President Masayoshi Son's meeting with U.S. President-elect Donald Trump, SoftBank's stock soared Dec. 8 to a two-year high in trading 70% heavier than the previous day. The meeting sparked speculation that the merger between Sprint, a member of the SoftBank group, and T-Mobile, the third-largest mobile carrier in the U.S., could finally happen.
Certain stocks are drawing high volumes of funds amid the rise of ultrafast electronic trading, where thousands of buy and sell orders are placed a second. With high-frequency trading companies increasingly installing servers in the same premises where the exchange's computer servers are housed, transactions via such co-location services accounted for a majority of the trades this year.
Meanwhile, institutional investors managing pension funds are opting for passive investing as their assets under management balloon. "Some 80% of questions from overseas investors are about politics and the Bank of Japan, and they are hardly interested in talking about individual companies," Kyoya Okazawa of BNP Paribas said. In this day and age, even passive investors cannot afford to neglect growth stocks like Nintendo if they want to outperform the market.
But just as hopes have buoyed Nintendo, the stock faces a potential steep downside. The run-up in the shares is based on "expectations that the company will come up with a megahit sooner or later," in the words of a sales promotion chief at Kabu.com Securities.
Downloads of Nintendo's latest game, "Super Mario Run," began Dec. 16, but its shares slid to a one-month low in the heaviest trading on the TSE first section. The stock's forward price-earnings ratio -- an indicator of how far down the road the price incorporates future profit -- came to 57 on Wednesday. Supposing that the stock rises to 50,000 yen, the ratio would jump to around 120.