In Japan it’s never too late to get in on the ground floor with stocks

December 27th, 2012 by Philip Brasor & Masako Tsubuku

Stock up: Mizuho’s board in Yaesu

New prime minister Shinzo Abe would like you to believe that the recent rise in prices on the Tokyo Stock Exchange are his doing, and the start of the rise did coincide with his election as president of the resurgent Liberal Democratic Party. Some economists have dismissed this theory, saying the stock market was due for a cyclical upturn anyway, but we’re willing to give Abe the benefit of the doubt if only because stock markets are so fickle and sensitive that the TSE would probably change if Bank of Japan governor Masaaki Shirakawa announced he was only going to wear green ties from now on.

Media focus on stock prices has revived the call to get the average person involved in the game. Everyone agrees that if the market improves steadily the general economy will, too. Since the crash of 2008, sparked by the failure of the Lehman Brothers investment house, all the world’s stock markets have gradually regained their footing except for Tokyo’s, which is dominated by foreign investors. The TSE has improved but at a much slower rate, and experts agree it has a lot to do with the fact that the vast majority of Japanese are still wary of stocks as a personal investment. One of the primary reasons for Japan’s long-standing deflationary trend is the huge personal savings stash of ¥1,400 trillion, half of which is estimated to be “dead,” meaning it isn’t even in a bank account. If only 1 percent of this money were invested in stocks, Japan’s fiscal problems would be solved. There would be more money in general circulation, and banks would then relax their loan criteria, allowing more companies to borrow money in response to perceived demand. Atsuto Sawakami of Sawakami Fund, one of Japan’s leading mutual funds, has been traveling the country encouraging retirees to buy stock by pointing out that traditionally company stocks in Japan have been owned by other companies, which are always under pressure to sell, thus stifling the market as a whole. If more individuals bought stocks and kept those stocks for the long-term, prices would automatically go up. The response, according to the Asahi Shimbun, has been positive. Business magazine Diamond Online reports that only 6.6 percent of individual financial assets in Japan are invested in stocks, while in the U.S. the equivalent portion is 30.6 percent. More individuals are gravitating toward mutual funds, but the portion of assets invested in them in Japan is only 3.4 percent, while in the U.S. it’s 11.8 percent. Meanwhile, 55.8 percent of individual assets in Japan are in non-performing bank accounts. The equivalent in the U.S. is 14.7 percent.

Fear remains the greatest impediment to investing in stocks, which has the potential of a 10 percent annual return for the average investor. This reluctance to invest even defeated major American investment houses like Merrill Lynch and Goldman Sachs, which set up shop here just after the turn of the century, confident they could pry some of that savings out of the Japanese public’s clutches, considering how little domestic banks were offering in terms of returns. The only one still working in the consumer realm is Citibank. And despite stagnant wages and deteriorating buying power, Japanese still save, about one-fourth of their disposable income, according to the BOJ, as opposed to one-tenth in Germany and virtually 0 percent in the U.S.

So whether you thank Abe or the gods above for the recent boost in economic activity, the industry is showing a more aggressive approach to getting average people interested in stocks. The Tokyo Stock Exchange has announced that it will choose between ten and twenty listed companies for a section it will call Nadeshiko Meigara. Nadeshiko is the flower that is often used as a metaphor for Japanese womanhood, and meigara means blue chip companies, which in this case boast more than the average number of women employees and managers and provide benefits specifically geared toward women, such as substantial maternity leave and child care assistance. The TSE will announce this section in February, but Aera magazine has already published a list of the companies it believes will be in it. Among the “growth” companies that are female-positive are Fast Retailing (Uniqlo), Rakuten, Asahi Group Holdings, Unicharm and Lawson. The “stable” firms are Honda Giken Kogyo, KDDI, Bridgestone, Eizai Pharmaceutical and Ajinomoto. The companies offering “relatively cheap” shares right now (i.e., ones likely to go up) are Mitsui Sumitomo Financial Group, JR East Japan Railways, Hitachi Seisakujo, Kao and Shiseido. Ladies, start buying.

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5 Responses

  1. And how does your average foreigner residing in Japan get in on the stock market?

  2. I thought your article was very insightful. I only see the Nikkei in terms of yen based economics. But I’m also of the mind the recent surge was not all due to politics that the Nikkei may in fact be just playing catch up.

  3. It was insightful but is this article for women who made it in the list?

  4. The article is for no one in particular. The list at the end is provided to show how the TSE is trying to attract more investors, in this case women investors or people who want to encourage more participation by women in Japanese business.

  5. I’m the CEO of Metcon Finance which is a new Financial services company based in Mumbai, India. We look at Global Equities & Macroeconomics as well for our Investment Research and Japan is an important country for it. I agree with your views in the article and would also like to add that what we are seeing going forward is that the NIKKEI may grow by 13-15% this year and individual stocks may give returns of 22-30% as well. We like the Financials, Steel, Manufacturing, Technology and Infrastructure sectors. Companies like Dai-ichi Life, Kansai Electric, Mizuho Financial Group, Ricoh among others.

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