Small Investors in Japan Jump In

http://dealbook.blogs.nytimes.com/2008/11/07/small-investors-in-japan-jump-in/

November 7, 2008, 6:32 am Link to This

Topics I.P.O./OfferingsIndustries Financial Services
A global stock rout and fears of worldwide recession have sent millions of professional investors into panicked flight. But in Japan a growing breed of contrarian investors sees opportunity after the Tokyo stock market reached a 26-year low recently, The New York Times’s Martin Fackler reports.

The Asia Trader and Investors Convention drew large crowds on Saturday in Tokyo. Some stopped to listen to Nobuyuki Fujimoto, center, a marketing executive at Kabu.com Securities.

Participants at the event bought finance books and other material as they browsed exhibits and attended seminars held by more than 300 local and international companies.

Since last month, Japan’s legions of household savers have poured into the market by the tens of thousands — many of them first-time investors — seizing the world financial crisis as the greatest buying opportunity in a generation.


Sitting atop $15 trillion in personal savings, they are snapping up equities, currencies and even riskier investments like index futures, to some extent replacing foreign investors and even helping drive a limited rally in Tokyo’s beleaguered exchanges, say stock analysts.

“The stock market rout has popularized stock trading like nothing before,” Yuji Kusunoki, president of Rakuten Securities, told The Times. “It’s a paradox, but all the grim news has actually ended up making the market seem more attractive.”

Individuals have emerged as the most active buyers on the exchange. Japanese individual investors were net buyers of $10 billion worth of stocks on the Tokyo Stock Exchange last month, according to Tokyo-based Daiwa Securities, compared with $2.1 billion in September. Foreign institutional investors were net sellers of some $7 billion in stocks the same month, the brokerage firm said.

And domestic stocks are also replacing foreign bonds and currencies as the investment of choice for Japanese individuals.

Reiko Fujiwara, a 37-year-old suburban homemaker, spent $20,000 of her family’s savings last month to buy shares of a half-dozen big Japanese companies like Nissan. Though long reluctant to play the market, her uncertainty was overwhelmed by her belief that stocks had been drastically oversold.

“I’m usually quite conservative,” Ms. Fujiwara told The Times. “But prices were just so cheap, it looked better than leaving my money in the bank.” She says she has broken even since she started investing in early October.

Since the failure of Lehman Brothers, brokerage firms have reported an unprecedented surge in the numbers of new accounts being opened. At Rakuten Securities, one of Japan’s biggest online brokerage firms, requests for applications to open accounts have nearly quadrupled in two months, to some 33,000 in October.

About half of those applicants are first-time investors, ranging from university students to retirees, but most new investors are white-collar workers in their 30s and 40s. The firm said it has also seen rising applications for currency and index future accounts.

This is not the first time Japan’s amateur investors have emerged as a financial force. A couple of years ago, Japanese homemakers trading currencies online became a powerful investing bloc, named Mrs. Watanabes, who drove down the Japanese yen. Now, small-time Japanese are piling into their home market, going against the global trend. In doing so, they are overcoming traditional inhibitions here against stock trading. A nation of craftsmen and manufacturers, Japan long looked down on finance because its wealth was not fueled by the sweat of the brow.

The change has helped end a large outflow of yen overseas known as the yen-carry trade.

For years, Japanese households poured money into overseas assets, where they could earn better returns than in Japan with its near-zero interest rates. But in October, net investment in domestic stock mutual funds surpassed investment in foreign bond funds for the first time in 27 months, according to Nomura Research Institute, a Tokyo-based consulting company.

Many stock strategists say this influx has at least helped Tokyo’s markets rebound some 26 percent from last month’s lows, though they remain down 41 percent for the year. Interest has been particularly keen in blue chips like Sony, Nissan and Toyota, whose prices have fallen so far that they are often trading at below book value. That means that these companies’ buildings, equipment and other physical assets are worth more than the total of all their shares on the stock market.

Stock analysts said the risks of buying in the teeth of a global recession were huge, and trying to call the bottom as stocks appear likely to face further declines is potentially costly. But they said the long time frame of most small investors, who tend to buy and hold shares for years, meant they may come out ahead eventually.

“They are wading into a treacherous market,” Katsuyasu Murata, deputy general manager of sales planning at Daiwa Securities, told The Times, “but prices have fallen to the point that they make no sense.”

The stock rush points to an unusual quirk of Japan’s stock markets: a growing tendency by individuals to pile in during stock market routs, no matter how dark the outlook may be. Japan had similar, though smaller, buying sprees after the 2000 bursting of the tech bubble and during the global sell-off after the Sept. 11 attacks in the United States.

Stock analysts say this habit comes from Japan’s long-stagnant stock markets, where major indexes have been stuck in a horizontal zigzag since the collapse of the nation’s stock market bubble in the late 1980s.

Indeed, individual investors help keep the market stuck in its doldrums by selling when markets rise.

“Japanese individuals are natural contrarians,” Tsuyoshi Ogata, a spokesman for SBI Securities, a Tokyo-based online brokerage firm, told The Times. “They only come in on the big dips” that come every half decade or so, he said.

Mr. Ogata said applications for new accounts more than tripled in October from the previous by 2,741 a day. About 70 percent of those were beginners, he said.

Interest is so intense that Daiwa even opened a new mutual fund last month, the Reevaluating Japanese Companies Fund, to cater to these investors, Mr. Murata of Daiwa told The Times.

He said the increase began early last month, when the benchmark Nikkei 225 index crossed the psychologically significant 10,000 yen line.

Mrs. Fujiwara, the homemaker, said she had bought a small number of stocks once before — when the Japanese market took a dive seven years ago. She said she sold those shares three years later and quadrupled her investment.

This time, she said, she decided to make a bigger investment after seeing bleak reports of the stock market sell-off on television.

“I’ll hold these share for five or 10 years, if necessary,” she told The Times. Her husband supports her, and is also trading online.

Other individuals are seeing the current downturn as a chance to become day traders, seeking shorter-term profits.

Hiroaki Mukai, a 35-year-old unemployed designer, followed a friend’s advice and last week began trading in Nikkei 225 index futures, a potentially lucrative but risky way to make bets on stock market moves.

Mr. Mukai told The Times he had never traded derivatives before. He said the index’s volatile moves, swinging as much as 10 percent in a day recently, gave him the opportunity to earn as much as $500 a day on his initial investment of $3,000. (He could lose too, of course.)

“Regular office workers have no chance to get rich, and it’s hard to imagine Japan become much wealthier, either,” Mr. Mukai told The Times. “I’m doing this to take care of myself, by myself.”

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