Honda shares pass Toyota's on emerging market hope

By Daiki Iga
TOKYO, Sept 2 Thu Sep 2, 2010 5:34am EDT

TOKYO, Sept 2 (Reuters) - Honda Motor Co's (7267.T) shares closed higher than those of rival Toyota Motor Corp (7203.T) on Thursday for the first time since 1976, as investors anticipated faster growth in emerging markets for Japan's No.2 automaker.

Honda's shares, marking a 34-year milestone once a two-for-one split in 2006 is stripped out, gained 1.9 percent to 2,859 yen, while Toyota ended down 0.3 percent at 2,850 yen, stalling as the overall Tokyo market rose.

Shares of Toyota, the world's most valuable car maker with a market capitalisation of nearly $120 billion, have been in a steady decline for the past six months, erasing the mild gains made after its worst-ever quality crisis that blew up in January prompted investors to dump its shares.

Toyota has recalled close to 10 million vehicles worldwide in the past year for problems related to unintended acceleration.

With a slower earnings recovery compared with Japanese rivals Honda and Nissan Motor Co (7201.T), Toyota's shares are hardly 10 percent above a post-Lehman crisis low, against a more than 70 percent rebound for Honda.

The business environment has turned tough for Toyota and Honda alike, with the yen hitting multi-year highs against the dollar and the United States car market -- the most important for both companies -- proving weaker than expected.

In August, Toyota and Honda both fared worse than average with a more than 30 percent decline in U.S. sales from the year before, when they benefited the most from government incentive-fuelled demand.

Market participants said the main factor behind the divergence in their shares' performance was the anticipated pace of growth in Asia's emerging markets, which have been the engine of many automakers' profit recovery.

"In Indonesia and other Asian markets that are expanding, the most popular vehicles are motorcycles and small cars," said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.

"Honda also has power products that give it a favourable portfolio in developing markets," he added.

Toyota is also enjoying robust growth in Asia, more than tripling its profits in the region to a record high in the April-June quarter.

"Because Toyota is so big, the fast-growing parts of the business are less noticeable," a trader at a Japanese brokerage said. "When the global economy or auto market expands, people buy Toyota shares. Now we're in the opposite situation."

Shares of other automakers known for their strength in Asia such as truck maker Isuzu Motors Ltd (7202.T) and minivehicle maker Daihatsu Motor Co (7262.T) have also fared well, defying a 15 percent slide in the benchmark Nikkei average .N225.

In the year to date, Isuzu has gained 65 percent, while Daihatsu has put on 22 percent. Toyota is down 26 percent, while Honda has lost 10 percent.

"There appears to be a move to sell Toyota and buy Honda among institutional investors," the trader said.

"The market values of Isuzu and Daihatsu are too small to trade Toyota's shares for them. Honda is more comparable so it's easy to make that shift."

Honda is the world's second-biggest automaker by market cap, valued at $60 billion. (Writing and additional reporting by Chang-Ran Kim; Editing by Michael Watson)

Source;
http://www.reuters.com/article/idUSTOE68106020100902