Foreign Analysts Thrive in Tokyo

While international pressure has mounted recently for the Japanese to open up their allegedly closed stock market, foreign analysts have been steadily penetrating the market, and, some say, even outshining Japanese analysts.

A growing number of foreign brokerage houses have set up shop in Japan.

Merrill Lynch, for example, is training 10 foreign analysts to specialize in Japanese stocks. The Japanese Analyst Assn. estimates that there are now 150 foreign stock analysts, or 15% of all analysts in Japan and five times as many as five years ago.

One attraction for foreign analysts is the increased volume on the Tokyo stock market. Total trading during 1984 was the equivalent of $29 billion, six times more than on the British stock market. In some industrial categories, the Japanese market has been performing better than the New York Stock Exchange.

Hisamichi Sawa, vice president of the Japanese office of the U.S. investment firm Prudential-Bache Securities, said foreign analysts also are doing well because their “detailed research and accurate predictions have been appreciated by the clients.”

Steve Usher, an analyst for Britain’s Kleinwort Benson Ltd., said foreign analysts spend more time researching a company, making company visits and writing reports.

“Their reports are usually at least three times as long as reports Japanese analysts write,” he said. “That’s because foreign clients want to know everything about a company, while Japanese clients are just concerned about the news which might influence the market, such as overseas production or new product introductions.”

Usher said most foreign analysts are fluent in Japanese. Kleinwort Benson analysts, he said, make about 30 visits to companies each month, obtaining all information in Japanese.

‘Can’t Ignore the Market Mood’

For many foreign analysts, working with the Japanese stock market is more of a challenge than working back home.

Peter Tasker, one of the Kleinwort Benson analysts, said that, since the Tokyo stock market is easily affected by news developments, “we can’t ignore the market mood.” He said that, to grasp the market “weather,” foreign analysts need to read newspapers and magazines to keep track of what is going on in Japan.

David Keller, an analyst for James Capel & Co. of Britain, said the reaction of Japanese companies to questions from foreign analysts varies depending on the products that the companies make.

Electronics companies, he said, are willing to share information, while food and chemical companies refuse, saying “we don’t like foreigners.” He said this is because electronic companies want to expand their markets overseas, while food and chemical companies want to keep their markets in Japan closed to protect profits.

Culture differences sometime hamper the foreign analysts.

Most Japanese analysts, Usher said, go for a drink after work and play golf on weekends with their clients or with people at the companies they research. But most foreign analysts, he said, do not socialize with clients or work associates.

“It might help my research, but it is not worth sacrificing my free time. It’s more fun to have dinner with my wife and children,” Keller said.

The difficulty all foreign analysts face, he said, is the way Japanese businessmen do business.

“When we ask them about their companies, Japanese people go around the issue and don’t answer us immediately,” Keller said.

He said he was reluctant to ask direct questions that might upset people, who then might refuse to give information.

One advantage foreign analysts have, Usher said, is that they can see Japanese companies more objectively and can be more critical because they do not have ties with the companies they are studying. Japanese analysts have been brought up thinking major companies like Toyota or Sony are special, and they are not as able to see shortcomings, he said.

Japanese Analysts Not Specialists

Sawa also said Japanese analysts are not specialists, and many transfer to other departments within their companies after working as analysts for a while. He said this is partly because the job of stock analyst has not been thought of as highly in Japan as it has in other countries, such as the United States or Britain.

But as foreign analysts begin to penetrate the market, Sawa said, Japanese brokerage houses have started to train their analysts to specialize and to analyze more logically and accurately.

“Since stock analysis is a promising job market, the number of both Japanese and foreign analysts will be increasing, and they will stimulate and compete with each other,” he said.