November 24, 2020

Investors Bet on Olympic Construction Boom

TOKYO — Ever since a group of out-of-work samurai pooled their pensions to found Onoda Cement 130 years ago, the company has had its ups and downs: industrialization, a crippling war, Japan’s postwar economic miracle.

But after domestic cement demand peaked in 1990, at the height of Japan’s bubble economy, Taiheiyo Cement, the successor company, and the industry, fell into a seemingly permanent decline in a mature and shrinking Japan.

Tokyo’s victory on Saturday in the race to host the Summer Games for a second time, in 2020, is giving Taiheiyo a new lease on life.

On Monday, a day after Japan reveled in the good news, the stocks of general contractors, property developers and other long-suffering construction-related companies surged in Tokyo, as investors anticipated a construction boom before the 2020 Olympic Games.

Construction companies helped lead a 2.48 percent rise in the Nikkei index to 14,205.23, a one-month high. Taiheiyo’s stock jumped more than 7 percent to its highest level in six years, while Taisei, the contractor that built Tokyo’s Olympic Stadium in 1964, soared 14 percent. Both stocks continued their rapid ascent Tuesday morning.

“We expect Tokyo’s success in bidding for the Olympics to become a very positive catalyst” for Japanese stocks, Hiromichi Tamura, a strategist at Nomura, said in a note to clients.

Helping to elevate shares was a revision of Japan’s second-quarter economic growth figures to an annualized rate of 3.8 percent on the back of strong capital investment. Preliminary estimates had shown growth of 2.6 percent.

The government estimates that hosting the Olympics will increase the economy by 3 trillion yen over the next seven years, or 0.3 percentage points of Japan’s economic growth a year.

But that estimate is too modest, Robert Feldman, head economist for Japan at Morgan Stanley MUFG Securities, wrote in a report last week.

He said that the impact would most likely reach 6 trillion to 8 trillion yen over the next seven years, or 0.7 to 0.8 percent of gross domestic product.

The most visible impact will be in construction. Tokyo has promised to keep costs down by using as many as 15 “legacy” buildings, including three built for the 1964 Games. Still, it will build 22 more sites at an estimated cost of $3.1 billion.

Tokyo’s huge new Olympic Stadium, called the cycling helmet for its space-age design, will seat 80,000 people and cost at least $1.3 billion to build. It will feature a retractable roof – a first for an Olympic Stadium. The city also plans to spend $955 million on a waterfront Olympic Village complex capable of housing 17,000 athletes and trainers.

Naoki Inose, the governor of Tokyo, has called the project “Tokyo’s biggest housing development in decades.”

Investors hunted for more Olympics-related shares. Advertising and travel agencies gained on Monday, as did Japanese sports equipment makers, like Mizuno and Asics.

Sagami Rubber Industries, which says it makes one of the world’s thinnest condoms, with a thickness of only 0.022 millimeters, jumped more than 8 percent during Monday trade, and continued to climb Tuesday. Condoms have been distributed to Olympics athletes since the Seoul Summer Games in 1988. Last year, the London Games distributed more than 150,000 condoms to athletes, according to British media reports.

Taiheiyo Cement is also poised to be one of winners of the Olympic rally.

Analysts at Nomura said that building the stadiums for the Games would require more than three million tons of cement in 2016 through 2019. And total demand for cement could be even greater, as hopes for a tourist influx before the Games prompt developers to plow money into hotels and other commercial projects.

The tide is already beginning to turn at Taiheiyo, as it taps reconstruction demand after Japan’s tsunami and nuclear disasters.

For the fiscal year through March, Taiheiyo’s net profit surged 44 percent from a year earlier to 11.3 billion yen, or $114 million, and the company expects an additional 14.7 percent increase this year, to 13 billion yen.

But how long will an Olympics-fueled rally last? Strategists at Nomura, who studied market patterns after past Olympic announcements, are optimistic. Their analysis shows that stock markets tended to perform well over the longer-term after a successful Olympics bid.

“Once strong investor interest in Olympics hosting-related stocks wanes, the stock market as a whole appreciates,” Mr. Tamura said.

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