Japan – another stock market but the same old theme

While commentators fret over the strong Yen and its impact on Japan’s export driven economy, I am instead depressed to see that investors are shorting the Nikkei’s “green” companies such as Meidensha Corp (6508) and Ebara Corp (6361). We’ll also look at Vestas Wind Systems (VWS). It is well known that listed solar companies are currently heavily short sold, with names like First Solar, Solarworld and Suntech Power all featuring prominently on hard to borrow lists in the US, Germany and Canada. The backdrop tends to be a tale of cash strapped governments pulling back on their subsidies for energy solutions that can counter global warming. In Japan, Meidensha Corp, has five business segments many of which strive to improve our environment by making us more efficient in our use of water, power, sewerage and offer solutions for energy saving and recycling. In other words, just the sort of company we’d like to see do well. The short base of 6508 is just under 10% while funds who lend, and whose aggregate ownership we can observe, used to own 7 million shares but now own more like 4 million. There has been some short covering in recent weeks but this has been profit taking since the shares have fallen from 350 jpy to 260 jpy. Number 10 on our list of large cap Japanese companies showing negative investor sentiment is Ebara Corp. The company manufacturers many things including nuclear equipment and “environmental improvement devices”. Short sellers were alive to the chances of this firm suffering hugely from the credit crisis but most shorts have since been covered. The price rebounded well in 2009 but has started to weaken and short sellers have returned, although only 1% of total shares are short. Funds who lend own more shares in Ebara than they did a year ago but their holdings appear volatile. In Australia’s recent election, the green party won Melbourne from the Liberals and had a very strong result. So even if politicians struggle to fund green initiatives, people want to see more in this area. Japan hosted the Kyoto conference that led to global emissions targets yet their progress in things like wind power is poor. In 2008 they were ranked 14th in terms of growth of wind capacity. Danish listed Vestas Wind Systems (VWS) powers one of Tokyo’s few wind turbines 20 miles to the south. Japan can’t be the only nation struggling to stimulate wind power since VWS fell 20% on their results last week and this was anticipated by the short sellers (9% of total shares are short). Of course, investors need to identify who is going to win the battles rather than the war and it seems the cost cutting of governments extends to current pessimism about Japanese eco companies.