Sterling has been blasted lower after BoE governor Carney cast doubt on a previously pretty-much-expected UK May rate hike. The EU's rejection of Britain's latest Brexit-Irish border plan only served to deepen the rot.
Article / 12 July 2016 at 8:02 GMT

From the Floor: How much is Pokemon Go really worth?

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  • Sterling recovers on selection of May as Tory leader, PM
  • At least ¥10 trillion of Japanese stimulus expected: Hardy
  • Gold retracing Brexit rally as risk sentiment returns
  • Pokemon-fuelled Nintendo spike likely unsustainable: Garnry

By Michael McKenna

Shares of Japanese gaming firm Nintendo (7974:xtks) are up over 50% since the release of the Pokemon Go mobile game last week. The game, which has already become a cultural phenomenon in the US, Australia, and New Zealand (where it is currently available pending server upgrades ahead of its rollout elsewhere), has players hunting for virtual Pokemon creatures in real-world locations with their smartphones

Its release has been greeted by investors as representing a dramatic victory for Nintendo's recently revised mobile strategy.

Phenomenon or not, however, one has to wonder if a single, blockbuster hit can or should be responsible for such a vertiginous share price gain. According to Saxo Bank head of equity strategy Peter Garnry, the current bout of Pokemania appears overzealous.

"I have difficulty seeing how you can justify Nintendo at these levels," says Garnry, adding that the Tokyo-based company's EV/EBITDA value is enormously stretched relative to competitors – even high-multiple technology firms such as Facebook.

More interesting, says Garnry, is Japanese instant messaging firm Line, which is set to make its IPO this Thursday in New York and Friday in Tokyo. "This is a very strong company," says Garnry, noting that he sees high levels of demand for the company's online services. 

"This is a very different animal from Twitter or other US tech companies [in terms of its profitability and valuation," he concludes.

According to Singapore-based Saxo director Christoffer Moltke-Leth, Line currently has 218 million users and is the dominant IM application in Japan, Taiwan, Thailand, and Indonesia. The firm derives much of its profitability from offerings in games and streaming music.

As a whole, equities continue to soar on the back of this week's stunning renewal of risk-on sentiment, which saw the S&P 500 hit a new all-time record high yesterday on the back of last Friday's strong US jobs print and the Sunday reelection of Japanese prime minister Shinzo Abe with a supermajority.

"Abe sees this win as an economic mandate for aggressive policy moves including reforms and stimulus," says Moltke-Leth. Noting that we do not yet know the sizeof the expected stimulus package, Saxo's Global Sales director cites the 20 trillion yen figure put forth by one advisor before adding that "10 to 15 trillion may be more realistic."

"Ten trillion yen is currently being seen as the base amount for Japan," adds Saxo Bank head of forex strategy John J Hardy, adding that the JPY is "spiralling lower" as confirmation approaches.

In other pairs, adds Hardy, EURGBP and cable are reflecting the consolidation of the British pound in the wake of a perceived stabilisation of the post-Brexit turmoil in the political scene.

The selection of Theresa May as Tory leader (and this incoming prime minister) is a major factor supporting the pound.

EURGBP is on the retreat following its post-Brexit spike:

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Source: Saxo Bank 

With risk sentiment on the rise, gold's recent gains are on the defensive with Saxo Bank head of commodity strategy Ole Hansen stating that he sees $1,328/oz as the key support line to watch in XAUUSD.

Crude oil, adds Hansen, is also on the defensive as a firming dollar combines with oversupply concerns to keep crude at the lower end of its recent range. "The focus is now on tomorrow's US inventory report after eight straight weeks of declines," says Saxo's commodities chief.

While the firming of the political landscapes in the UK, Australia and most prominently Japan represent a decent basis for a post-Brexit relief rally, the current spike by no means reflects an absence of dark clouds on the horizon.

"The major stumbling block for world markets remains the italian banks situation," says Hardy, adding that the ongoing dialogue between Rome and Brussels over European Union banking regulations and thus Italy's ability to pump money into the embattled sector (Italian banks currently carry around €360 billion in bad loans) remains volatile.

Yesterday, reports ZeroHedge, the International Monetary Fund was out warning of "global contagion" from Italy's woes, adding that the country appears to be in the middle of what will ultimately be a two-decade long recession.

So there is no shortage of fear factors looming over world markets, but investors are currently taking a very "eat, drink, and be merry" approach with risk sentiment apparently freed from its Brexit-day restraints.

"If this trend continues," says Hardy, "we could see risky currencies advance with AUDUSD likely to hit 0.8150 even if the trend remains bearish overall."

So here there be little bulls, we suppose, and all manner of other pocket-sized beasts as well. But as Nintendo appears likely to discover once this latest bout of exuberance fades, tiny monsters can only take one so far.

They're pretty inflated for the moment, though. Photo: iStock

Michael McKenna is an editor at

Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.
Michael S. McKenna Michael S. McKenna
Nintendo shares rose another 15.6% today and are now up over 80% from their pre-release of Pokemon Go levels.


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