While video game sales break new records all across the world, video game stocks have seen better days.

American publishers Activision (ATVI), Electronic Arts (ERTS), Take Two (TTWO) and THQ (THQI) have all seen their stocks dramatically fall over the year.  The latter has had the worst hit, sinking 86% in a year while others have been cut by over half their peak values in 2008.  Many analysts and investors see the rise of Nintendo (NTDOY.PK) as being the main culprit.  Nintendo's Wii and DS have seen dramatic sales and persistent shortages due to demand.  You would think that would mean for an expensive Nintendo stock?

Wrong.  Nintendo just dropped another 6.5% on the Tokyo Stock Exchange to 30,200 yen in overnight trading.  In the beginning of 2008 it went to as high as 64,500.  Perhaps this is due to the fact that sales of Japanese video games are not performing as well as they are in the United States. The Japanese may therefore be having a difficult time believing that with America's economic turmoil, Nintendo games will continue to perform well.  Indeed, trade volume of Nintendo stock in Japan is consistently low in the world's second largest economy, while Nintendo's ADR in the United States trades at similar volume relative to value, suggesting that there is actually more interest to trade Nintendo in the United States.

That kind of a statistic is problematic, given that America's Nintendo ADR will tend to follow the Japanese stock performance, not the other way around.  Japanese video game publishers like Capcom and Square Enix Holdings, Inc. have also seen dramatic cuts in their…