NEWS ANALYSIS : Japan Stock Market Hit by Doldrums : Trading: War, scandals, politics and low earnings reports have driven share prices down.
Two years after beginning its precipitous drop, Japan’s stock market can’t seem to shake the blahs.
The 225-issue Nikkei stock average sank 518 points in the first two hours of trading today as investors, concerned about a slowing world economy, declining corporate profits and an impending settlement date for futures trading, stayed clear of the market. Not including today’s performance, Tokyo share prices have fallen in 12 of the last 13 trading sessions, breaking a two-decade record for the number of consecutive declines.
The string of losses have given up most of the gains made during a small rally this fall and have pulled the market back into a deep slump. During the first three quarters of the year, the Persian Gulf War, a series of financial scandals and finally the failed Soviet coup battered stocks mercilessly.
In this latest downturn, investors are warily watching economic trends. While the Japanese economy is expected to grow by about 3% next year, it is not growing fast enough to make up for a stagnant U.S. market and the economic slowdown in Europe.
Japanese companies simply aren’t making much money.
Sales of videocassette recorders are plunging. Sophisticated semiconductor chips are being discounted like dime store ballpoint pens, and machinery is beginning to pile up in warehouses.
Blue chip Japanese companies such as Toshiba, Fujitsu and Matsushita Electric are recording profit declines of between 40% and 60%. Many analysts are predicting even worse news for the fiscal year that ends March 31, 1992.
This fall, the continued climb of American stock prices in the face of growing evidence of a weak economy seemed to make Japanese stocks attractive by comparison. No longer. Now the Dow Jones industrial average has turned down again, and there is anxiety in Tokyo over a possible Black Monday-style plunge beginning on the New York Stock Exchange.
Foreign investors in the Japanese market, who played a key role in pulling up stock prices from their low this summer, are now holding back with the approach of the Christmas season.
Nobody was quite aware just how bad things were until Sony Corp. tried to sell shares in Sony Music Entertainment (Japan) Inc., its new music business subsidiary. The offering faced a chilly reception: Prices last week fell 25% below the initial offering price before anyone was willing to buy. Watching that fiasco, dozens of companies canceled or postponed their own plans for share offerings.
Many stockbrokers believe that they are being punished for their past profligacy. During the late 1980s, brokerage houses issued shares at astronomical prices without consideration for fundamentals. Salesmen pushed outrageously pricey shares on unwary customers. When the whole house of cards came crashing down, individual investors were burned. Scandal followed when it was revealed that favored corporate customers were bailed out with compensation to cover their losses.
“I know we probably deserved this and we have to go through a slow period like this to let the markets straighten out,” an impatient Yamaichi Securities executive said recently. “I just wish we could get over it quickly.”
Although most analysts are pessimistic about the chances for an upturn, there are also very few that predict a sharp decline. The market closed at 22,687 on Friday, down from its high of 25,222 on Oct. 30. Observers say financial authorities would likely intervene if the market were to drop below 22,000. That is the critical number below which banks, with their large share holdings, would have difficulty meeting their capital requirements.
But the absence of much downside in the market isn’t much comfort when prices remain more than 40% below their 1989 highs. And nobody sees a way out of the narrow box in which stocks are trading. The stock funds, whose losses triggered the compensation schemes that were at the center of this summer’s scandals, are now being liquidated. Consequently, as soon as shares pick up a little, they are sold off, hammering prices back down. There is also a large overhang of convertible bonds that threaten to dilute shares, minimizing the upside from buying stocks and scaring away new investors. Kosaka Uano, head of research at New Japan Securities, said market jitters also stem from worries about the impact of the Dec. 13 settlement date for all futures trades.
Low interest rates used to be the magic cure. But now even falling interest rates have not been a strong enough lure to bring back investors. And analysts say the Bank of Japan is unlikely to cut the discount rates, the rate at which it lends money to banks, until next year.
Traditionally, Tokyo share prices have rallied around the New Year holiday. However, analysts give little hope of a pickup in investor interest this holiday season. Fate, for one thing, seems to be working against the market. Traders say the market tends to be jinxed when Jan. 2 does not fall on a weekend. This year, the market will reopen after the holiday on a Thursday.
