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Japan's small OTC issues seen rising in new year

TOKYO: Japan's over-the-counter (OTC) shares are expected to rise in the new financial year from Monday even though the flight of some high-tech heavyweights to other exchanges could lower the market's profile.

The Jasdaq OTC index rose 166.88 percent in the financial year to March 31 to 108.94 points from 40.82, led by large-cap Internet stocks such as Yahoo Japan Corp 4689, Oracle Corp Japan 4716 and anti-virus software maker Trend Micro 4704.Q.

The more selective Nikkei OTC index saw similar gains and is expected to rise further as a tidal wave of money flows into equities when 58 trillion yen ($549 billion) in postal savings deposits start to mature from Monday.

"There was an obsession with large-cap, high-techs toward the end of last year and now we're starting to see small and good OTC issues being picked up again," said Jonathan Allum, analyst at ING Barings.

"We should see dynamic performance in small OTC issues -- whether or not they're high-tech."

Investors will be able to focus on the smaller, newer and nimbler companies once the big names depart the OTC market.

Oracle Japan, the Japanese unit of U.S. data software firm Oracle Corp ORCL.O, unveiled a plan last month to sell 9.7 million shares to the public and move to the main Tokyo Stock Exchange (TSE) in April.

Internet portal Yahoo Japan, owned 51.2 percent by Softbank Corp 9984 and 34.2 percent by Yahoo! Inc YHOO.O of the United States, has said it could move to Nasdaq Japan, a sister version of the U.S. Nasdaq market that is due to start up in June.

Analysts said others may follow suit and capital-hungry Internet startups could now choose listings on either the TSE's new Mothers market for venture firms or Nasdaq Japan instead of the traditional OTC market.

"Oracle and Yahoo together account for nearly 40 percent of the Jasdaq, so the OTC market will change its character somewhat to a small company market, but that's not necessarily a bad thing," Allum said.

Minoru Tayama, senior analyst at HSBC Securities in Tokyo, also saw small stocks outperforming large-caps.

"The market's uptrend is becoming increasingly reliant on fundamentals, a typical sign the economic recovery is out of its infancy," he said.

"This is good for small value stocks that have been largely ignored in recent months when investors became obsessed with large-cap Internet stocks. This is a trend I see continuing for several years."

While most analysts were generally bullish on small OTC stocks, they said buying would be selective. Pharmaceutical, retail and service-related stocks were the best picks, strategists said.

Allum favoured real estate issue Touei Housing 8875 and household electric appliance store operator K'S Denki 8282.Q.

Tayama said he expected machinery and high-tech appliance makers, in addition to retail and pharmaceutical firms to perform well.

Others had high expectations for biotechnology stocks, such as Kanto Biomedical Laboratory Co Ltd 9707 and Medical & Biological Laboratories Co Ltd 4557.Q.

"After the big names leave we'll be seeing an increasingly selective market, with investors cautiously measuring both valuations and future potential," said Hiroichi Nishi, deputy general manager at Nikko Securities.

"There are many stocks in the OTC market which I see undervalued, but some are justifiably cheap."-Reuters