Japan’s stay-at-home food stocks lose immunity to downturn

TOKYO — Makers of instant food were the go-to stocks in the Japanese market recently, poised to benefit from the social distancing trend, but now the shares are undergoing a correction.

Nissin Foods Holdings, which makes instant noodles, fell 3% during Thursday’s trading in Tokyo. Frozen food maker Nichirei and Toyo Suisan Kaisha — the company behind Maruchan ramen — each dipped 4%

Food stocks are usually considered defensive and recession proof, even in normal times. Reports of customers making bulk purchases of food items put the companies in the limelight.

Components in the Topix food subindex surged by 22% from March 16 to 30, outpacing the Nikkei Stock Average’s gain of 12% during the same period. That activity sent the average price-earnings ratio for food stocks soaring to between 40 and 50, well above the multiple of less than 20 considered standard for the sector.

But market attitude toward food stocks shifted this month.

“Stock prices sharply recovered due to the effect of stay-at-home consumption, but later on the purchase orders have not come in as much as anticipated,” said Yutaka Masushima, analyst at Monex Securities.

With outings discouraged at home and abroad, restaurants are shutting down. Those food companies also supply commercial establishments and have overseas operations. Investors started to look at their earnings more closely. 

The Saizeriya chain, a purveyor of Italian food, downgraded its earnings forecast Wednesday due to the coronavirus outbreak. The revenue downturn in the restaurant industry is expected to shrink earnings at industrial food suppliers as well.

Condiment maker Kewpie said on April 2 it predicts net profit will drop 36% to 12 billion yen ($110 million) for the full year through November. The company foresees a loss of business-to-business sales both in Japan and China.

“There are many [food] manufacturers that make products for both household and business use,” said Takashi Ito, an equity market strategist at Nomura Securities. “The slump in business-use sales could erase earnings gains from stay-at-home consumption.”

The acute swings staged by food stocks have shown that they serve as a barometer of the crisis’s severity. Those shares enjoyed high demand in the immediate aftermath of the 2011 earthquake and tsunami that afflicted Japan, but the buying spree did not last.

In the end, investors come to the conclusion that earnings matter the most. 

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