Nikkei gains but market optimism tested by valuations

TOKYO, Jan 20 (Reuters) - Japanese shares edged higher on Monday, due to strong U.S. housing data and investor optimism following last week’s U.S.-China trade deal, though the market’s valuations are getting stretched.

The Nikkei share average rose 0.19% to 24,087.51, staying near its 15-month high of 24,115.95 touched last week. The broader Topix gained 0.49% to 1,743.98 though trade was slow due to a U.S. market holiday on Monday.

The gains came on the back of Wall Street’s record close on Friday after data showed U.S. homebuilding surged to a 13-year high in December.

The market was also underpinned by the signing of an interim trade deal last week between the world’s two largest economies.

“Considering that last year people were talking about the possibility of trade talks breaking down, it is a huge relief that we have had a deal,” said Masahiro Ayukai, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Given that the market has risen almost 20% since early August even as Corporate Japan’s profits outlook has hardly improved, many investors are turning cautious.

The Topix is now trading more than 14 times above expected earnings, compared with below 11 times at the start of last year.

Chip-related shares were riding high, with optimism on the industry getting another boost last week after Taiwan Semiconductor Manufacturing Co Ltd (TSMC) forecast an up to 45% spike in January-March revenue and raised its capex plan for the year.

Disco rose 2.5%, Taiyo Yuden added 1.9% and Nidec added 1.2%.

Telecom shares also advanced, with KDDI rising 1.5% to a 3-1/2-year high, while NTT gained 0.5% to a two-year peak.

Shares of Toshiba Corp fell 4.6% after the company found possible accounting irregularities at a wholly-owned subsidiary, prompting it to revise past financial statements.

On the other hand, Toshiba Machine Co soared as a fund backed by veteran activist investor Yoshiaki Murakami planned a takeover bid for the former Toshiba subsidiary firm.

Toshiba Corp now owns just over 2% of Toshiba Machine shares. (Reporting by Tokyo Markets Team; Editing by Subhranshu Sahu)