Tokyo Market Outlook: Spotlight returns to chemical stocks as hidden gems in semiconductor supply chain

The Tokyo Stock Exchange saw the Nikkei Stock Average edge up 38 yen to close at 64,217 yen on the 11th, posting a modest rebound. The morning session was marked by volatile swings that left investors dizzy, but the afternoon session brought relative stability as the index hovered near its previous close. The market ultimately finished just in positive territory. However, the gains were largely driven by just two names ? Kioxia Holdings <285A> and Tokyo Electron Limited <8035> ? while the number of declining issues on the Prime Market approached 1,000, far exceeding advancers. Tomorrow marks the Major SQ (Special Quotation) settlement day for index futures and options, but with arbitrage buy positions not significantly built up and options open interest broadly distributed, the potential for market disruption appears limited. Today's intraday volatility did not give the impression of a fierce battle between bulls and bears.

Individual stocks showed signs of indecisiveness. Even semiconductor-related shares, which have been the market's main driver, exhibited diverging performance ? the days of all names moving in lockstep appear to be fading. While major semiconductor stocks started the morning on a soft note, Kioxia ? a perennial leader in trading volume ? quickly reversed course after the open, surging into positive territory and climbing above the 77,000 yen level. For short sellers, this was an unexpected and painful performance. The "Kioxia effect" effectively propped up the Tokyo market, as its strength triggered follow-on buying in other large-cap semiconductor stocks with high Nikkei index weighting.

Stocks at the core of the AI and semiconductor theme ? including Kioxia, the recently strong Tokyo Electron, and ADVANTEST CORPORATION <6857>, the original NVIDIA-related play ? are unlikely to lose their appeal anytime soon. Buying on dips when prices soften remains a high-probability strategy in the short term; at least that has been the case over the past year. At the same time, the pace of gains has been sharp, and chasing these names at highs is not a sound investment approach. For those targeting the core holdings, the key remains watching for corrections.

For now, investor attention appears to be quietly shifting back to peripheral AI and semiconductor-related stocks that have not yet run up excessively. Stocks in the semiconductor materials space ? particularly within the chemicals and food sectors ? are quietly positioning for a rebound. Ajinomoto Co., Inc. <2802> is a dominant force in the food industry and the world's leading seasoning maker, but it is also widely recognized in the market as an unrivaled supplier in the semiconductor manufacturing process. The company produces Ajinomoto Build-up Film (ABF), an interlayer insulating material for semiconductor package substrates. Leveraging its proprietary amino acid production technology and derived organic chemistry and compounding expertise, Ajinomoto commands nearly 100% of the global market share ? a true one-of-a-kind company. If Ajinomoto were a small-cap stock focused solely on ABF rather than a major food sector conglomerate, it would undoubtedly have undergone a dramatic revaluation as a global niche champion. IBIDEN CO.,LTD. <4062>, a mega-supplier of advanced semiconductor packaging, counts NVIDIA and Intel among its major customers, and relies entirely on ABF in the production of its package substrates ? making its relationship with Ajinomoto inseparable.

The chemicals sector is also a treasure trove of companies with irreplaceable, highly advanced technologies in the semiconductor manufacturing process. Notable names include Shin-Etsu Chemical Co., Ltd. <4063>, the world's top producer of semiconductor silicon wafers and a frontrunner in EUV resists; TOKYO OHKA KOGYO CO., LTD. <4186>, a specialist in photoresist technology for miniaturization; and Resonac Holdings Corporation <4004>, which holds dominant market share across a range of products used in semiconductor back-end processes, including copper-clad laminates (CCL).

Beyond these, a number of chemical manufacturers are increasingly well-positioned to benefit from the infrastructure buildout of the generative AI era. FUSO CHEMICAL CO.,LTD. <4368> is one such company. It holds a top-tier global share in fruit acids such as malic acid and citric acid, but it is the company's establishment of a global niche leadership position in ultra-high-purity colloidal silica ? an essential abrasive for semiconductor wafer polishing ? that has resonated with investors and driven a significant re-rating of its stock over the past year. Colloidal silica plays a critical role in the chemical mechanical planarization (CMP) process for semiconductors. It is indispensable for semiconductor miniaturization requiring nanometer-level precision, and demand is also rising from 3D stacking needs in AI semiconductors such as GPUs, pushing the company's earnings into a phase of dramatic growth. Among smaller, under-the-radar plays, TAKI CHEMICAL CO.,LTD. <4025> also deserves attention. A major producer of chemical fertilizers with a strong global share in water treatment chemicals, TAKI CHEMICAL also has meaningful exposure to the semiconductor industry. The company has significant room to contribute through its solutions related to ultrapure water production and wastewater and chemical treatment, both of which are indispensable to semiconductor manufacturing facilities.

Tomorrow marks the calculation day for the Major SQ (Special Quotation) for June stock index futures and options. In addition, an auction for 3-month treasury discount bills will be held during the morning session, while the final reading of April industrial production will be released during the afternoon session. Overseas, market attention will be focused on the Nasdaq listing of SpaceX . Other events of note include the release of India's Consumer Price Index (CPI) and the preliminary June University of Michigan Consumer Sentiment Index, both of which are attracting significant market interest. Philippine markets will be closed.

Source: MINKABU PRESS

*Translated by generative AI. Click here for the original article.