Japan’s large securities companies have benefitted from the new government’s growth strategy as well as expansion of monetary easing measures, but the sustainability of performance remains in question, Fitch Ratings says. Ultimately, top-line profitability is still susceptible to investor confidence – which may fade if the government’s policy fails to stimulate real and lasting economic growth.
Year-end results show that aggregate net operating revenue for the five largest securities firms – Nomura Holdings, Daiwa Securities Group, SMBC Nikko Securities, Mitsubishi UFJ Morgan Stanley Securities and Mizuho Securities – rose by over 22% in the year ended March (fiscal year 2013 (FY13)). Over a third was generated in the last quarter ending March (Q4FY13) when market conditions turned favourable. The full-year trading gains were particularly strong, rising by 43% yoy. Fees and commissions were up more modestly, by 12%.
Prime Minister Abe’s new economic policy and the Bank of Japan’s additional monetary easing provided a boost to equity values and trading volume during Q4FY13. In Q4FY13, the Nikkei 225 rose by 19%, and total trading volume on the Tokyo Stock Exchange was up by nearly 60% compared with the previous quarter. The securities firms have earned wider spreads on client activities, helped by the upward momentum and greater volatility.
However, it remains uncertain whether the market will be able to maintain a long-term positive trend without clear evidence of recovery in the real economy – and, therefore, corporate earnings. The recent rapid rise in equity prices could result in greater downside risk, and may dampen investor appetite for further risk-taking.
A prolonged slump in overseas business prompted Nomura and Daiwa to restructure their global strategies over the past few years. Fitch believes the timely reallocation of the sales force as they wind down unpromising business areas will continue to be critical for enhancing overall operating efficiency.
