Here's an example of a government limiting short selling:March 13, 2002
Tokyo Stock Rally Is Attracting Some Suspicion
By KEN BELSON
TOKYO, March 12 — In Japan's well-orchestrated economy, few things happen entirely on their own, including stock market rallies.
A government-led turnaround has catapulted the benchmark Nikkei 225-stock index up 23 percent from an 18-year low on Feb. 6, even after it slipped 2.6 percent today, to 11,607.33, largely on profit taking.
Yet the Nikkei's rally has some investors crying foul and many predicting a collapse in the next few months.
Part of the revival has come from a surge in the number of share repurchases by listed companies. The Toyota Motor Corporation (news/quote), for instance, has said it plans to buy back as many as 45 million, or 1.2 percent, of its shares.
But the biggest reason for the recovery, and for the ensuing debate, is the government's effort to stem short selling, a common practice involving bets that stock prices will fall. At the end of 2001, investors betting that Japanese stock prices would decline outnumbered those who expected a recovery.
On Feb. 8, two days after the Nikkei closed at 9,420.85, its lowest finish since 1983, the government moved to rein in this pessimism by adding tighter restrictions on short selling to its antideflation package. The package was released on Feb. 27.
The Financial Supervisory Agency now prohibits brokers from selling stocks short at or below the lowest available price. It has also strengthened reporting requirements. And for good measure, it fined several foreign brokers, including Bear, Stearns and Crédit Lyonnais, for failing to provide sufficient details of their short selling activities.
The effect of the moves was instantaneous. Shares in airlines, machinery and steel makers and transport companies all shot higher as short sellers bought back shares to close positions. Brokers, fearing more government penalties, stopped taking orders for short sales, at least through the end of the fiscal year, on March 31.
The government is also said to be increasing its stock buying operations through its $2 trillion, not-yet- privatized postal savings system to give the rally an additional push.
Underlying the strategy is the fact that Japan's debt-laden banks hold trillions of yen in stocks that are counted as part of their capital base. The lower the stock prices fall, the larger the losses of the banks. And with the close of the fiscal year just weeks away, the government wants to push prices as high as possible to stave off a March crisis.
Though the government often tries to strengthen stocks before the books close, lawmakers are now under additional pressure because the ending of the blanket guarantee on some bank deposits has savers skittish. The problem, critics say, is that curtailing short selling may help banks get through this fiscal year but does not address more fundamental issues, like why banks hold so much stock.
Worse, they say, the moves have laid bare the government's real intention: to prop up political bedfellows and put off difficult long-term reform, despite the promises of Prime Minister Junichiro Koizumi.
Many experts expect shares to decline in April, when the new fiscal year begins. Strategists at Merrill Lynch (news/quote) and Credit Suisse First Boston, for instance, have told their clients to stock up on Japanese stocks now and be ready to dump them once the rally peters out, a tactic that has paid off in previous years.
For the domestic asset managers, who reallocate an estimated $70 billion of discretionary funds in April as they place bets for the coming year, the focus will be on whether the economy and profits will recover in 2002.
On the positive side, inventories have been drawn down and exports are starting to turn higher, good news for manufacturers. Household spending has held steady, despite falling wages and higher unemployment, because prices are also falling.
But falling prices also make it harder for companies to repay their debts, a phenomenon that is adding to the pile of nonperforming loans that banks hold. To patch over the problems, the government is urging banks to bail out ailing, but politically powerful, construction companies by swapping debt for equity and taking other measures. The approach may keep unemployment from rising quickly, but it also prevents new jobs from being created, leaving the economy to corrode as before.
"It's going to be a precarious recovery at best," said Akio Yoshino, the head of the investment research department at the SG Yamaichi Asset Management Company, who expects the Nikkei to fall back toward 10,000 during the April-June quarter as companies lower their earnings estimates for next year.
nytimes.com |
