Near-Dead Companies Help Fuel Rash Of Price Manipulation, Scaring Investors
TOKYO -- For almost a century, Sumikura Industrial Co. was a respected cog in the Japanese industrial machine. But one day in 1999, the little manufacturer of metal-cutting tools started acting funny.
It told shareholders it was going into water filtration, then into electronic engraving, then into debit cards. It said corporate control was passing to a wealthy Kuwaiti, whom executives understood to be an oil-rich prince. Then rumors flew that speculators were manipulating the stock. Amid all this turmoil, the company somehow managed to sell round after round of bonds convertible into stock.
In February, Sumikura's president was suddenly charged with paying off gangsters. The business collapsed. Still, the company's shares continued trading on Japan's main stock exchange, even for several weeks after Sumikura filed for liquidation in May.
Economic Inertia
The strange story of Sumikura helps explain the inertia that's holding back Japan's once-mighty economy and its stock markets. Twelve years after Japan's raging 1980s asset-speculation peaked, its main stock index stands a stunning 74% below the 1989 high-water mark. This dismal fate has led some worriers in the U.S. -- which has seen a bubble of its own pop -- to wonder if America could be in for something similar.
But Japan has some large dysfunctions that are unique to its market. Most notable is the Japanese public's extreme lack of confidence in the stocks. No nation is immune to stock-market chicanery, as America's spate of big financial scandals attests. What's unusual about Japan is how normal the public takes chicanery to be. Stock manipulation is so commonplace here that there's one term for shares rigged by politicians and another for those milked by speculators. Even the country's finance minister recently called Japan's stock markets "gambling dens."
Contributing to this climate is a mass of struggling public companies on which banks and market regulators might have been expected to pull the plug long ago. They're sometimes called zombie companies -- alive, but nearly moribund. Banks often keep them on life support to minimize bankruptcies or job losses. And Japan's stock exchanges don't delist even deeply depressed stocks, unlike in the U.S., where shares are dropped if they remain below a dollar. On the Tokyo Stock Exchange, roughly 10% of shares limp along at below ¥100, or 83 cents, according to PacificData Co.
freerepublic.com |
