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[TOKYO] Investors are snapping up Japanese stocks in the retail and transportation sectors, thanks to a weaker yen that has lured a record number of foreign visitors in one of the few bright spots for the economy.
The yen has tumbled to seven-year lows making Japan cheaper for tourists and helping companies that cater to tourists such as railway operators and certain retailers.
Tourism spending is a boon to Japanese firms battling a stagnant domestic economy, which slipped into recession in the third quarter, and a declining population.
Foreign visitor numbers hit a record 11 million from January to October, up 27 per cent from the previous year, according to the Japan National Tourism Organization.
These tourists spent 1.468 trillion yen in that period, surpassing last year's full year figure of 1.417 trillion yen, according to the Japan Tourism Agency. In July-Sept alone, they spent a record 550.5 billion yen, up 41.2 per cent year-on-year.
"The trend has just started. Foreigners will continue enjoying bargains in Japan as a weak-yen trend is likely to last," said Daiju Aoki, senior economist at UBS Securities. "We expect double-digit growth in tourism spending to continue." The yen has lost about a third of its value over the past two years since Prime Minister Shinzo Abe has pushed through monetary easing and government spending to revive the economy.
Railroad companies are among the stocks that investors say benefited. Keisei Electric Railway Co, which connects Tokyo's downtown and the Narita Airport, hit a 23-year high recently and is up 43 per cent this year, compared to a 5.3 per cent rise in the Nikkei share average.
Central Japan Railway Co, which runs bullet trains between Tokyo and cities in Western Japan including Kyoto, a major tourist attraction, has hit a multi-year high, and is up 37 per cent this year.
Other beneficiaries include Oriental Land Co, which operates Tokyo Disney Resort, which hit a record high this month and is up 74 per cent year-to-date.
Real estate investment trusts (REITs) that invest in hotels are also booming. Japan Hotel Reit Investment Corp hit a multi-year high this month and is up 56 per cent this year.
Some shares have risen so much that some investors think they are now fully valued.
For instance, Oriental Land is already one percent above the target price of analysts at Nomura, which recommends shares as "buy".
"Some of these stocks' valuations are expensive," said Makoto Kikuchi, the chief executive of Myojo Asset Management, adding that income from foreigners accounted for only a small portion of the group's sales.
However, some other shares, such as retailers that have been stepping up efforts to woo foreign tourists, could rise more.
To encourage foreign shoppers the government in October expanded tax-free items for foreign tourists to include consumables such as snacks, drinks and cosmetics on combined purchases over 5,000 yen.
"Retailers like Bic Camera are worth looking at as more foreign tourists buy Japanese goods such as candies and pens,"Masashi Oda, chief investment officer at Sumitomo Mitsui Trust Bank.
Bic Camera Inc.'s inbound sales for the first quarter through November soared 2.5 times on the year, the company's spokesman said.
Their shares rose 100 per cent so far this year to 1,182 yen. But SMBC Friend Securities think the shares could rise to 1,500 yen.
"Since consumables became tax free, sales of alcohol beverages and drugs has been rising dramatically. We are also seeing sales growth in cameras and watches as the number of foreign visitors is increasing," he said.