By Yumi Ikeda and Aya Takada
TOKYO, April 25 (Reuters) - Japanese retail investors see food, drug and chemical makers as well as retailers and wholesalers as likely takeover targets under new merger and acquisition rules to take effect in May, a Reuters survey showed on Wednesday.
Japan will adopt new rules for cross-border share swaps next month, allowing a foreign firm's local subsidiary to use its parent company's shares to buy a Japanese firm. The framework is commonly referred to as a "triangular merger" scheme.
The survey showed 20 percent of respondents saw the food, retail and wholesale sector as vulnerable to takeovers under the new rules, while another 20 percent said they expected the drug and chemical industry would be the likeliest target.
The survey, which polled 714 retail investors from April 16 to 20, found that Nissin Food Products Co. Ltd. , Sapporo Holdings Ltd. , Takeda Pharmaceutical Co. Ltd. and Eisai Co. Ltd. were seen by respondents as likely takeover targets.
"The value of Japanese companies' shares is very low compared with their foreign counterparts. Especially in the drug and chemical industry, their differential is remarkable," said a man in his 60s who said his financial assets are worth less than 30 million yen ($250,000).
"Japanese makers with the highest level of technology and product quality will likely be takeover targets," he added.
Some respondents said supermarket operator Daiei Inc. 8263.T and drug maker Shionogi and Co. Ltd. 4507.T could be vulnerable to acquisition.
The electronics and information technology sector was chosen by 19 percent of the respondents as the most likely target for M&A, followed by the financial sector with 13 percent and the steel, metals and mining sector with 11 percent.
Hitachi Ltd. , Sanyo Electric Co. Ltd. , Mizuho Financial Group Inc. , Nippon Steel Corp. and Sumitomo Metal Mining Co. Ltd. are among companies seen by these respondents as likely targets.
"They can buy a company with high growth potential for a small amount of money," said a man in his 50s who saw the electronics and IT industry as ripe for M&A.
Commenting on the survey results, a spokesman for Nippon Steel said: "We believe that raising the value of our company is the biggest defence against takeover attempts."
INVESTOR CONFIDENCE FALLS
The survey also found that the retail investors sentiment index in the Japanese stock market dropped to +22 in April from +24 in March, hitting the lowest level since November.
Of the respondents, 61 percent said they were bullish about Japanese stocks while 39 percent said they were bearish.
"I feel the global economy is entering into a corrective phase," said a man in his 30s with financial assets worth less than 20 million yen, explaining why he is bearish.
A man in his 40s said: "As the yen's decline has come to a halt, exporters will gain less benefit from a weak yen."
A man in his 50s said Japanese stocks are weighed down by concerns about the slowdown in the U.S. economy. He also noted that the Japanese stock market tends to underperform from April to May, as it did last year and in 2005.
On the contrary, respondents who said they were bullish about Japanese stocks cited good corporate earnings, a solid global economy and the yen's fall against the euro as positive factors.
"The economies of industrialised nations will likely benefit from the growth of developing countries," said a man in his 30s with financial assets worth less than 5 million yen.
The survey found that investor became bearish especially on financial and insurance stocks, with the sentiment index for the sector falling 14 points from the previous month to -24 -- the worst level since Reuters began the survey in January 2006.
Investor sentiment on the auto sector also dropped to +42 -- the lowest level since last September.
But their confidence in the high-tech and IT sector rose by 24 points from March to +26.
The survey showed retail investors became more interested in putting fresh funds into small-cap shares, cyclicals and IPOs, while they were less interested in international blue-chips and low-valuation stocks.
The survey also found that investors became more interested in equity funds with focus on Asia and Oceania as well as Russia, while they were less interested in equity funds with focus on India, China and Japan.
The monthly poll aims to capture the views of readers of an online magazine (http://www.investor.reuters.co.jp/home/) aimed at users of the Reuters Japan Web site
(http://www.reuters.co.jp).
Following are results of the survey. Q1a. Which sector do you think will be vulnerable to mergers and acquisitions after new M&A rules take effect in May?
Retail, wholesale, food 20%
Drug, chemical 20%
Electronics, IT 19%
Financial 13%
Steel, metals, mining 11%
Automobile, auto parts 4%
Construction, real estate 4%
Transport, warehouse 3%
Textile, paper pulp 2%
Services 1%
Others 3% Q1b. Which company do you think is the most likely target?
A number of respondents picked up the following firms:
Nissin Food Products Co. Ltd.
Sapporo Holdings Ltd.
Daiei Inc. 8263.T
Takeda Pharmaceutical Co. Ltd.
Eisai Co. Ltd.
Shionogi and Co. Ltd. 4507.T
Hitachi Ltd.
Sanyo Electric Co. Ltd.
Pioneer Corp
Mizuho Financial Group Inc.
Nikko Cordial Corp. 8603.T
Resona Holdings Inc.
Nippon Steel Corp.
Sumitomo Metal Mining Co. Ltd.
Kobe Steel Ltd. Q2. Are you currently bullish or bearish on Japanese stocks?
DIFFUSION INDEX = BULLISH - BEARISH
OVERALL MARKET 22 = 61 % - 39 %
------------------------------------------------------------ ------------------------------------------------------------ APR MAR FEB JAN DEC - - - - - - - - - - - - - - - - - - - - - - - - - - - OVERALL MARKET 22 24 60 52 24 MATERIALS (steel, oil, etc) 54 56 58 50 60 AUTOS, AUTO PARTS 42 48 72 74 58 I.T., HI-TECH, ELECTRONICS 26 2 40 40 20 PHARM, HEALTH CARE 14 20 36 34 20 SERVICES -22 -24 -12 -26 -24 RETAIL/DISTRIBUTION -36 -40 -34 -52 -38 FINANCIALS -24 -10 10 14 -6 REAL ESTATE/CONSTRUCTION 4 0 10 10 -8 ------------------------------------------------------------ ------------------------------------------------------------ Q3. Which of the following stock sectors are you interested in putting new funds into? ------------------------------------------------------------ ------------------------------------------------------------ APR MAR FEB JAN DEC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - GROWTH STOCKS 45% 46% 49% 54% 50% INTERNATIONAL BLUE-CHIPS 49% 52% 47% 48% 44% LOW-VALUATION 54% 64% 57% 59% 62% SMALL CAPS 17% 16% 21% 23% 24% CYCLICALS 9% 8% 10% 8% 8% IPOS 13% 11% 12% 12% 12% NEW LISTING 6% 6% 7% 6% 9% OTHERS 3% 3% 3% 4% 3% --------------------------------------------------------------- --------------------------------------------------------------- Q4a. Which of the following financial products are you interested in putting new funds into? ------------------------------------------------------------ ------------------------------------------------------------ APR MAR FEB JAN DEC - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - BANK DEPOSITS 17% 18% 15% 12% 20% DOMESTIC STOCKS 70% 69% 72% 78% 75% OVERSEAS STOCKS 16% 16% 21% 19% 19% GOVT BONDS 5% 6% 4% 5% 7% DOMESTIC CORP BONDS 1% 3% 1% 1% 2% FOREIGN BONDS 13% 12% 11% 12% 13% EQUITY FUNDS 31% 32% 37% 36% 29% BOND FUNDS 4% 3% 3% 1% 2% LISTED FUNDS 5% 6% 6% 4% 5% REITS 9% 13% 15% 15% 12% REAL ESTATE PRODUCTS 4% 5% 6% 4% 4% GOLD, COMMODITIES 7% 7% 7% 8% 8% FOREIGN CURRENCY DEPOSITS 10% 11% 9% 10% 11% VARIABLE INSURANCE 1% 0% 1% 1% 0% VARIABLE ANNUITY 1% 2% 1% 1% 1% FOREX MARGIN TRADE 12% 13% 12% 12% 11% OTHERS 2% 3% 2% 3% 2% --------------------------------------------------------------- --------------------------------------------------------------- Q4b. Those who selected equity funds in Q4a, which geographical area are you interested in? ------------------------------------------------------------ ------------------------------------------------------------ APR MAR FEB JAN DEC - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - JAPAN 41% 45% 42% 45% 43% NORTH AMERICA 9% 11% 12% 10% 13% ASIA/OCEANIA 36% 32% 34% 34% 30% EURO ZONE 18% 18% 13% 17% 16% EUROPE EX-EURO ZONE 9% 7% 7% 7% 9% BRAZIL 18% 19% 20% 17% 16% RUSSIA 22% 19% 17% 15% 14% INDIA 37% 44% 50% 46% 41% CHINA 19% 25% 32% 35% 30% GLOBAL 20% 25% 21% 18% 22% OTHERS 7% 4% 6% 6% 7% --------------------------------------------------------------- --------------------------------------------------------------- Q4c. Those who selected equity funds in Q4a, what types of equity funds are you interested in? ------------------------------------------------------------ ------------------------------------------------------------ APR MAR FEB JAN DEC - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - DOMESTIC INDEX 22% 23% 23% 20% 27% DOMESTIC ACTIVE 26% 22% 25% 25% 25% DOMESTIC BALANCED 16% 19% 21% 21% 19% REGULAR DIVIDEND PAYOUT 16% 20% 16% 20% 17% RISK-REDUCED 8% 9% 10% 8% 6% ALTERNATIVES (hedge funds) 19% 17% 19% 20% 19% FOREIGN-DOMICILED 43% 40% 46% 41% 40% OTHERS 3% 3% 1% 2% 3% ------------------------------------------------------------ ------------------------------------------------------------ ((Reporting by Aya Takada, editing by Mike Miller; Reuters Messaging: rm://aya.takada.reuters.com@reuters.net aya.takada@reuters.com +81-3-3432-7431)) ($1=118.51 Yen) Keywords: JAPAN STOCKS/INVESTORS Keywords: JAPAN STOCKS/INVESTORS (C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nTKV003365