Editor’s Note
This article examines the puzzling divergence between Fast Retailing’s strong corporate earnings and its declining stock price, with a particular focus on market sentiment around its operations in China.
A Uniqlo storefront in Shanghai, China. Photo: CFOTO / Future Publishing via Getty Images
Reuters (UK)
Text by Noriyuki Hirata
The stock price of Fast Retailing, which operates Uniqlo, has been notably declining since the beginning of the year. While there is weakness in its China business from a corporate performance perspective, the company has maintained strong results, including posting record-high operating profits.
Amid widespread confusion among market participants over the extent of the selling, seasonal supply and demand factors are being pointed out. As the benchmark date for the Nikkei Average’s periodic review approaches, caution over large-scale selling through weight (composition ratio) adjustments of the company’s stock may be leading to a reluctance to buy.
Following the company’s earnings announcement on the 10th, Fast Retailing’s stock fell as much as 7.8% in the Tokyo market. The decline from the start of the year reached about 11% based on the closing price. Voices of confusion were heard in the market, with one domestic securities strategist commenting:
As the stock contributes the most to the Nikkei Average, it alone pushed the index down by 328 yen on that day. It’s possible that without the decline in this stock, the Nikkei Average would have seen only a slight drop of less than 90 yen.
Hisahiro Yamaoka, a research analyst at Nomura Securities, pointed out in a report dated the 9th:
However, he added: