Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Fri, Feb 21 1992 Date: Fri, 21 Feb 92 06:00:50 EST Message-ID: BONUS: Japan's stock market in doldrums USA TODAY Update Feb. 21-23, 1991 Source: USA TODAY:Gannett National Information Network Japan has done plenty of America bashing. But that's nothing compared with the bashing Japanese investors have given their stock market. Since peaking at 38,915.87 the last day of 1989, the benchmark Nikkei index of 225 stocks has plunged 47%. If the Dow Jones industrial average had done that, it would be at about 1460 - not Thursday's record 3280.64. WHAT EFFECT IS THE FALLING JAPANESE MARKET HAVING ON INVESTORS? The tanking Japanese market has beaten up investors, who have taken large losses on stock investments. Likewise, it's hurt Japanese companies, which can no longer raise cheap cash through the market. The pain may not be over. "Their market isn't projecting optimism," says Larry Krohn, economist at Shearson Lehman Bros. "It's projecting a sinking economy." IS ANYONE WORRIED ABOUT THE JAPANESE STOCK MARKET'S DROP? Japan's ruling Liberal Democratic Party is worried that the stock market will melt even more. In an act of near-desperation, government officials this week announced a package of stock-boosting proposals that among other things urge companies to raise dividends and call for a review of taxes on stockholders. Meanwhile, in the USA - where some Japanese officials see "lazy" and "illiterate" employees - stocks continue to soar, reflecting optimism over the economy and corporate profits. HOW WELL IS THE AMERICAN STOCK MARKET DOING? The Dow has hit a record 11 times this year and shows only modest signs of tiring. The U.S. market also has displaced the Tokyo market as the world's most valuable. Japanese stocks now account for 29% of the industrialized world's stock value, down from 40% at the start of 1990. U.S. stocks account for 38%, up from 31% at the start of 1990. ARE THERE ANY BENEFITS TO A WEAKENED JAPANESE STOCK MARKET? Given all the cross-border trash talking, people in the USA may be tempted to gloat a bit. They might be wiser to turn Japan's pain into their financial gain by snapping up Japanese stocks at bargain prices. "This is a tremendous buying opportunity," says Hiroshi Shimizu, vice president at Nikko Securities. WHAT'S KEEPING JAPANESE STOCKS DOWN? Keeping Japanese stocks down: Economists predict economic growth of less than 3% this year; trade problems with the USA; the ending of Japan's fiscal year; and a series of political and financial scandals. By Japanese standards, 3% economic growth is abysmal. Japan's gross national product grew 5.5% in 1990. Things have slowed so much in recent months that some economists predict negative growth next quarter, almost unheard-of in Japan. WHY IS JAPAN'S ECONOMY SLOWING? Behind the slowdown: relatively high interest rates and a world recession. The country has been hit hard by a parallel collapse of stocks and real estate, which has forced companies that own property into bankruptcy court in record numbers. That has investors bearish. HOW ARE TRADE PROBLEMS WITH THE USA AFFECTING STOCKS IN JAPAN? Trade problems with the USA are adding to the economic uncertainty. America bashing in Japan is fueling a once-quiet Buy American movement in the USA. In an election year, politicians are seizing the moment, promising trade retaliation. If a full-blown trade war erupts, it could stall Japan's huge export business. WHY IS THE FISCAL YEAR'S END HURTING STOCKS? Japan's fiscal year ends at the end of next month, and until then, "there's going to be selling pressure," says Masato Degawa, vice president of Morgan Stanley Japan. About $58 billion worth of Japanese investment trusts, akin to U.S. mutual funds except that they have fixed terms, are expiring this year. That requires selling the stocks. In boom times, investors simply rolled proceeds from those funds into new stock funds, so there was little selling pressure. Now, with stocks battered, investors are inclined to cash out and find another place to put their money. HOW ARE SCANDALS AFFECTING JAPANESE STOCKS? A series of political and financial scandals have rocked Japan most of the past two years. Thursday, government officials announced plans to push for a full investigation of Japan's most recent black eye: alleged bribery of politicians and mob ties by the country's second-largest trucking group, Sagawa Kyubin. The charges could put the firm out of business and undermine investor confidence - already reeling from the two-year bear market and admissions last year by Japan's largest brokerages that they compensated large clients for investment losses. WHAT HAS THE JAPANESE STOCK MARKET MEANT TO THE NATION'S COMPANIES? Japanese companies, which benefited tremendously from a 1986-89 bull market, no doubt hope the market turns up soon. From 1987 through 1989, Japanese firms raised roughly $400 billion by issuing stock and securities tied to stock, such as warrants and convertible bonds paying interest as low as 1%. The convertible securities gave investors the option to convert to stock at a preset price and time. As long as stocks were rising, investors couldn't get enough. WHAT DID JAPANESE COMPANIES DO WITH THEIR GAINS? That money was used for research and to invest in new equipment, among other things. Those same three years, U.S. companies raised only $130 billion by selling stocks and convertible securities paying rates of 5% and up. But now, the cheap cash spigots are all but closed. Last year, Japanese companies raised only $42 billion through stock and convertible securities. U.S. firms raised $82 billion. To make matters worse, Japanese companies must still pay back the principal on all those stock-linked securities sold in the cheap-money days. HOW MUCH IS THAT EXPECTED TO COST? When those securities were issued, companies thought holders would just convert them into stock when the securities matured. Now, holders are choosing not to do that. Instead, they're taking repayment in cash. An estimated $77 billion in those securities will come due the next two years, a potentially huge drain on Japanese capital. WHO'S BEEN HURT MOST BY THE JAPANESE MARKET'S COLLAPSE? Among the hardest hit by the market collapse: Japanese banks, already crippled by the souring real-estate market. They count part of their stock holdings as capital. "So, as the market goes down, their capital goes down," Krohn says. Already, one bank, Tokai Bank, has reportedly fallen below global requirements. Others could follow. That dwindling capital means banks are less inclined to make new loans, putting a lid on business expansion. WHAT'S SEEN FOR THE JAPANESE MARKET? The government and brokerages are acting. Not only has the Liberal Democratic Party moved to prop up the market, but Japan's four biggest brokerages met recently to discuss a joint fund to buy stocks. For the moment, anyway, "most think there's still room to go lower," says Katafuchi Hirokazu, trader at Daiwa Securities. But once the new fiscal year begins in April, some say it'll be a new ballgame for long-term investors who can live with short-term turbulence. Bonus Editor: William Snoddy. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. 08:0002210000T2030 US01- R - USA-TODAY............................. A T2030 02-21 0000 cc cc Feb. 21, 1992 This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM