General story on Japanese Stocks:
August 11, 1999
Individual Japanese Investors Make
Cautious Return to Tokyo's Market
By BILL SPINDLE and CRAIG KARMIN
Staff Reporters of THE WALL STREET JOURNAL
Kazuyoshi Usui, a 68-year-old retiree from an export-import company in the port city of Yokohama has been doing something lately he hadn't done in years: buying Japanese stocks.
For most of the past decade, Mr. Usui and many other individual investors boycotted the Tokyo market, smarting from the losses they suffered in the early 1990s when Japanese share prices tumbled by two-thirds.
But since March, Mr. Usui has been back in the market, concentrating specifically on companies dependent on the health of Japan's domestic economy. "I think the Nikkei could reach 20000 by the end of the year as the U.S. stock market weakens," he says.
With individual investors like Mr. Usui trickling back, some U.S. investors see the leading edge of a powerful wave that could bolster the Japanese market recovery. "When Japanese retail investors put money in the market, they are creating greater volume and liquidity," says Eric Ritter, portfolio manager for the Driehaus Asia-Pacific Growth Fund in Chicago.
But skeptics say that most Japanese individuals will exit as quickly as they came at the first sign of trouble. They add that many of the investors re-entering the market are borrowing money to do so, which could bring unwelcome volatility. Only when consumer confidence returns and the economy is unambiguously on the mend will the risk-averse retail investor embrace the stock market.
In Tuesday's activity, Tokyo stocks were essentially flat, with the Nikkei closing up 0.1% to 17202.09. But continuing worries over rising U.S. interest rates and political tension between Taiwan and China dragged most of Asia lower. Rate concerns also pressured European stocks. Overall, the Dow Jones World Stock Index fell 2.41, or 1.13%, to 210.51. Excluding the U.S., the index fell 1.59, or 1.02%, to 155.03.
The Tokyo stock market has been in a rut for most of the 1990s. The Nikkei peaked at 38915 on the final trading day of 1989, then dropped to 14309 by August 1992. It climbed back as high as 22666 during a summer rally in 1996; then it slumped back to 14775 in December.
Although the market is up 24% since January, foreign investors are largely responsible and few believe the rally is sustainable unless local investors join the party. So the first signs of real individual interest take on particular significance.
In July, when the Tokyo Stock Exchange says individuals purchased a net 193 billion yen ($1.68 billion) of stocks, they accounted for about 35% of the value of trading, figures, said Tsuyoshi Nomaguchi, an equity strategist with Daiwa Securities Co. That compares with only about 12% in the first few months of this year.
Although individual Japanese investors are still net sellers of 823 billion yen of stock over the first seven months of the year, July was the most active month for individuals since March 1991.
Brokers' profits are up markedly. So are the numbers of salary men hanging out in the lobbies of brokerage firms staring at stock prices as they flicker in red across huge black boards. Nomura Securities Co., the country's largest broker, says client visits to branches are up 30% since January. Circulation at the stock-market tabloids sold in subway stations has jumped, as well, right along with the intensity of their headlines. The Kabushiki Shimbun, one industry stock tip sheet, has seen newsstand sales jump 60% since February, the biggest increase since the late 1980s, according to the company.
Individual trading has helped push the broader market higher as well. Japan's over-the-counter stocks, where individuals have accounted for as much as 80% of trading recently, has more than doubled since individuals starting moving into the market at the beginning of the year.
Retail investors have the potential to push the market far higher in the next few years-if their participation continues to grow-securities industry officials say. Japanese now hold only about 10% of their assets in stocks directly or through mutual funds, compared with around 60% in the U.S. They will have many more opportunities in the next few years as Japan introduces 401(k)-style retirement plans and 63 trillion yen in high-yielding time deposits expire at the government's postal savings system, where many Japanese keep their money in banklike deposits.
But while individuals' new appetite for stocks is partly due to improving economic conditions in Japan, their taste is also being whetted by the ease with which cash has flowed through Japan's economy since March. Interest rates are essentially zero in money markets, and the government has poured trillions of yen into weak banks and struggling small and medium-size businesses to keep them afloat.
Speculative buyers, many of them veterans who bet aggressively by purchasing stocks on margin by borrowing as much as 70% of the cost of the share purchase from their broker, have played a key role in pushing the market higher in the past few months. In July, for example, individuals bought a net 491 billion yen of stocks on margin, according to the Tokyo Stock Exchange. That was three-quarters more than in June, which was almost double the amount they bought in May.
Meanwhile, more conservative individuals who buy and sell shares without borrowing money from brokers have been net sellers every month this year. They sold 298 billion yen worth of shares in July.
The highly leveraged margin traders add a volatile element to Japan's market. Shares of electronics giant Fujitsu Ltd., for example, shot up 46% between July 1 and Aug. 3 as the company became the focus of aggressive margin buying. Over the next three days they then plunged 14%.
Shares of Softbank Corp., one of Japan's few true Internet plays, also soared 42% through the first half of July as leveraged investments on margin climbed as high as 88 billion yen in July, according to Nikko Salomon Smith Barney. The shares then tumbled 21% in the second half of the month as technology shares in the U.S. lost ground.
It's exactly these sort of capricious price movements that could drive many individuals running back to the safety of fixed-income securities. Indeed, Mr. Usui says that as he ventures into the stock market again this summer, he's doing so cautiously, using only "extra" money he can afford to lose.
Moreover, Japan's economy remains a problem. "You need consumer confidence first before you see people willing to take risks in the stock market," says Robert Reiner, portfolio manager for Deutsche Asset Management in New York. "And you're not going to get that unless they feel that the economy has definitely bottomed out."
Tuesday, Economic Planning Agency Chief Taichi Sakaiya indicated that gross domestic product in the April to June quarter could be negative. The agency added that unemployment, which reached a record level of 4.9% in June, is growing more severe and that housing investment appears to be slowing.
Especially troubling to some market watchers is that the very brokers helping fan the individual investment boomlet are themselves among the largest net sellers when it comes to their own accounts. Financial institutions trading on their own books were the biggest net sellers of all in July, dumping 748 billion yen worth of shares. "You could argue they are taking advantage of the boom," says an equity salesman at a foreign brokerage in Tokyo.
-- Norihiko Shirouzu contributed to this article. |
