Investors see buy opportunity in short-selling of Japan stocks

Tokyo

AS bets pile up against Japanese stocks, investors with US$293 billion in client assets see the pessimism as a signal to buy. History is on their side. Short-selling on Tokyo's bourse jumped to the highest on record this month as the Topix index tumbled 7.7 per cent from a six-year high in September. Shares have rallied an average 9.7 per cent over the three months following surges in bearish bets since 2009, according to Bloomberg data.

For Sydney-based AMP Capital Investors Ltd, that's one reason for optimism. The outlook for company profits is another. Government-backed steps to put a floor under Japanese equities may prove dangerous for short-sellers: The central bank says it's ready to add stimulus if the economy falters, while on Oct 20, a Nikkei newspaper report that the country's US$1.2 trillion pension fund would buy local shares roused the Topix from a three-week rout. "Fear is hitting extreme levels and it's time to get into the market," Nader Naeimi, who helps manage about US$125 billion as head of dynamic asset allocation at AMP, said on Oct 14. "When these sentiment indicators flash excessive pessimism, it usually suggests we've reached the lows."