Bulls eye year of the dragon
A look at prospects for Japan, Hong Kong and Korea
By Bill Clifford, CBS MarketWatch
Last Update: 3:46 PM ET Dec 30, 1999 Net Stocks
TOKYO (CBS.MW) -- High-fives to those investors who grasped early this year the three factors that would make Asia?s stock markets hotter than hot in 1999: economic recovery, information technology and the sloshing of liquidity looking for a home.
These will propel Asian markets into the new millennium, although duplicating this year?s extraordinary gains will be difficult. It?ll depend on how countries cope with inflationary pressures, how they embrace e-business and perhaps most importantly of all how the blazing U.S. market behaves.
Speaking of high-fives, how about these:
* Japan?s Nikkei 225 Average, for the first time in four years, finished the year stronger than it began. A welcome enough achievement on its own, it was made better by the scale of the gains: up 36.78 percent to 18,934.34 -- the Nikkei?s highest close of 1999. Other Japanese gauges did better. The broader TOPIX index of stocks on the Tokyo exchange?s first section ended up 58.44 percent at 1,722.20, it?s highest close since January 1992. And the Nikkei over-the-counter (OTC) index surged 213 percent on the year to 2,270.14.
* Hong Kong, Asia?s No. 2 equity market, saw the Hang Seng Index soar 68.8 percent to 16,962.10 from 10,048.58.
* South Korea topped its neighbors, with the key Kospi Index vaulting 82.3 percent from its 1998 close of 562.46 to 1,028.07 -- its best finish since Dec. 24, 1994, at 1,035.82.
* Taiwan survived a massive earthquake in September and still managed a full year gain of 31.6 percent to end at 8,448.84.
* Singapore's Straits Times Index strode 78 percent to a record close of 2,479.58.
JAPAN
By the time the benchmark Nikkei sagged to 13,122.61 on Jan. 5, a number of equity strategists were already looking even lower -- some were predicting convergence with the Dow Jones Industrial Average at 10,000!
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12/30/1999 4:07:30 PM ET
Not so far-fetched then, given the gloom fostered by economic mismanagement and financial corruption. But the 10K Nikkei-Dow convergence scenario was buried for good by March. With the Bank of Japan?s emergency "zero interest-rate" policy and the recapitalization of the nation?s bad-debt-laden banks with government funds, the Tokyo stock market?s rebound began.
The return to much stronger-than-expected economic growth added momentum. Yet it was mainly foreign investors who put money -- lots of it -- behind their conviction that the GDP numbers were real. So much so that the heady capital flows into Japan drove the yen from 120 to the dollar to 110, and later to near 100. The dollar was trading at 102.25-30 yen on Thursday. The high yen capped the Nikkei during summer by threatening the earnings of Japanese exporters, including technology leaders like Sony Corp. (SNE: news, msgs) and Fujitsu Ltd. (FJTSY: news, msgs).
Two things happened: Smaller OTC companies, many given life-support from government subsidies and sheltered from the yen, became the focus of believers in Japan?s recovery. It was no longer a "Nifty 50" blue-chip game. Then the Sonys, Fujitsus and a few other Nifties started talking Internet ventures, and investors liked what they heard (others drew the conclusion that the stronger yen wasn?t that strong to matter, or if it was, a steadily improving economy would allow companies to bear it.) Meanwhile, shares of Softbank Corp., already Japan?s ultimate Net concern, were in the midst of tracing a 1999 flight path from around 6,000 yen to 97,800.
Assuming minimal Y2K disruption and a stable economy, many expect the Nikkei to break 20,000 in the next few months. Japan?s economy remains a risk. The government says there?s no more need for extra money to prime the pump -- that?s after trillions of yen in emergency fiscal stimulus and a huge budget planned for 2000. But there will be more if need be; with a national election slated for no later than mid-October, ruling-party politicians will make sure.
More depends on corporate Japan, whose will to restructure has often disappointed. The good news is that mergers and acquisitions, sometimes involving non-Japanese firms, are becoming more acceptable to Japanese companies. The M&A trend will likely accelerate as a marketplace known as Japan.com emerges from the shadows of Japan, Inc.
Companies are becoming Web enabled, online investing is gathering steam and venture capitalists are circling to ply start-ups with what they need to list on the new Mothers board or its coming rival Nasdaq Japan. The risk is that Nasdaq in the U.S. slumps and some e-business models fail.
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