Hedge funds have boosted their bearish bets on Japanese technology companies such as Nikon Corp and Casio Computer Co as the industry struggles to deliver the next killer product.
Technology companies account for eight of the 10 Japanese stocks that are most targeted by short sellers, who have collectively wagered ¥197.1 billion (US$1.7 billion) that the shares will fall, according to data compiled by Bloomberg.
Oxford Asset Management, Vinva Investment Management Ltd and Stats Investment Management Co are among hedge funds that are wagering against Japanese tech stocks, according to filings with the Japan Exchange Group.
Two decades after Sony Corp launched the PlayStation and almost a decade after the iPhone ushered in a booming smartphone area, the bearish bets reflect pessimism about Japanese companies’ ability to come up with the next big thing.
While robotic automation, virtual reality and the so-called Internet of Things hold promise, there is currently nothing that matches the smartphone’s potential, said Nicolas Baratte, Hong Kong-based regional head of technology research at CLSA Asia-Pacific Markets.
“In the next two years, something that can really create significant revenue growth for the whole sector indeed is very hard to find,” Baratte said.
The total market value of bets against the most-shorted technology companies has been rising, jumping by ¥14.2 billion, or 7.8 percent, between Monday and Wednesday last week, according to data compiled by Bloomberg.
Even for smartphones, growth is cooling after a decade-long boom. Global sales of smartphone are set to increase 5 percent this year, slowing from growth of 28 percent in 2014 and 10 percent last year, according to Credit Suisse Group AG.
“Global growth of smartphones is seen as slowing down,” said Mitsuo Shimizu, equity strategist at Japan Asia Securities Group. “It’s possible that the short selling is related to that expectation.”
Nikon, a maker of cameras, lenses and precision equipment, is the most-targeted stock with 16 percent of its outstanding shares being shorted as of Wednesday, while Casio is fifth with 7.5 percent.
Hedge funds were shorting about 6.7 percent of the outstanding shares of Sharp Corp, which is close to signing a US$6 billion takeover agreement with Taiwan’s Hon Hai Precision Industry Co (鴻海精密).
Short sellers borrow stocks they believe will decline to sell them with the hope of repurchasing the securities later at a lower price and pocketing the difference.
Not all the bets have gone in favor of short sellers. Nikon’s stock is up 7.8 percent this year, as net income for the third quarter increased more than analysts had estimated.
Casio has dropped 23 percent in the period. Its third-quarter operating profit of ¥11.8 billion missed analyst estimates.
Japanese companies were Asia’s best-performing technology stocks last year, led by online gaming companies and software companies. This year, the TOPIX has fallen 14 percent. Still, the sector index is trading at a price-to-earnings ratio of 24 times, higher than 15 times for the TOPIX.
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