Tokyo Stocks Plunge 3.8% at Close of Early Trading
The Tokyo Stock Exchange resumed its slide this morning, with the Nikkei index plunging by nearly 1,100 points in the morning session to close at its lowest level this year.
Share prices have eroded steadily since January and registered their second-worst daily fall--of 6.6%--on Monday. Stocks fluctuated wildly Tuesday and Wednesday, although they were showing some signs of stabilizing above the “support level” of 28,000 points on the 225-share Nikkei average as investors shored up confidence.
But the Nikkei quickly fell through the 28,000-point level again today, dropping by more than 400 points in the first 15 minutes of trading and falling a total of 1,088.94 points, or 3.8%, by the end of the morning to 27,354.00. It was not clear whether stock prices would go into another free fall, but volatility was certain to follow.
Contributing to the pessimism were rumors that one or more small Japanese brokerage house was on the verge of bankruptcy because speculative investors were failing to meet margin calls. Share prices of securities companies in general have taken an unusual beating in the recent market downturn, along with banks and other financial issues.
Speculator groups, which borrow heavily for their stock investments and post shares as collateral against further loans for further investments, have been under extreme pressure to meet margin calls, analysts say. Often they must sell stocks to do so, driving down prices and feeding a “vicious circle” in the psychology of the market.
When margin calls cannot be met, the brokers must absorb the losses.
“The brokers have been getting killed,” said Alan Woodhull, a senior analyst in Tokyo for Merrill Lynch. “That’s not all--some of the banks and utilities are down to one-third of their peaks.”
Kazuhiro Miyake, an analyst for Nikko Securities Co.’s Nikko Research Center, said rumors about a brokerage collapsing fueled the selling this morning but were most likely premature.
Miyake noted that Yamaichi Securities, one of Japan’s “Big Four” brokerages along with Nikko, Nomura and Daiwa, had teetered on the edge of bankruptcy after the first oil shock in the early 1970s, but the Ministry of Finance stepped in to rescue it with loans. Smaller securities houses were subject to buyouts and mergers in past market downturns, he added.
“It’s a difficult time for the brokerage sector,” Miyake said. “The speculators are suffering a lot of losses, and the smaller brokerages are the hardest hit.”
Before Japanese stocks went into their descending roller coaster ride, the Nikkei had soared to a lofty peak of 38,915.87 on Dec. 29, when the average price/earnings ratio stood at 62.4. The index was gutted by more than 28% by this morning, and the average P/E ratio on the first section of the Tokyo Stock Exchange was down to about 45.
Analysts differ on whether the current stock decline represents a crisis-style meltdown of the Tokyo market or a healthly correction to more sustainable levels, after speculation and excess cash inflated prices out of line with corporate earnings and other fundamentals.
Nikko’s Miyake, for one, said the current 28% market decline ranks only as the fifth worse in postwar trading in Tokyo. By comparison, the Nikkei suffered a cumulative loss of 37% from its peak following the first oil shock, he said.
Merrill Lynch’s Woodhull characterized the present price plunge is a “reordering of priorities” after a long period in which the market was clearly overvalued.
“The hype has been taken off the market, and a lot of stocks are simply getting a haircut,” Woodhull said. “Nothing has changed, except we have some macroeconomic shifts going on” such as in interest rates and foreign exchange rates.
Most traders and analysts agree that the atmosphere in Kabuto-cho--Japan’s Wall Street--is now one of resignation, not panic.
The dollar, which traded momentarily above the 160-yen level on Monday, was trading in mid-morning in Tokyo today at 158.18.
