Investing In Asia

Already, Japanese consumers are free to buy foreign stocks, bonds and mutual funds, and they can keep their money in foreign-currency banks accounts. They can now choose a foreign stockbroker rather than a Japanese one, and since October they’ve been able to negotiate a commission directly with their broker instead of having to settle for the standard going rate.

The impact of this last move is already severe. Commission rates have dropped so low that many of Japan’s biggest stockbrokers are feeling the pinch. Of the 2,000 brokers now trading in Japan, some observers think that only 20 or so will be able to survive the full onslaught of foreign competition. Many of the rest will fall into the hands of the hundreds of foreign institutions eager to get their hands on this massive market but Big Bang also sends another message about how Japan’s business climate is about to change.

Investing In Asia & Tokyo

The more you think about this change in the business climate, the easier it is to get frightened. In theory, the best way for Japanese companies to start delivering these higher profits will be to slim down their workforces now. But the government doesn’t want higher unemployment either, because it would be bound to send the retail spending figures down at precisely the moment when they seem to be recovering. Indeed, it might even provoke a kind of social revolt that most Japanese would regard as completely unthinkable. What to do?

Investing In Asia & The Prime Minister

Unfortunately, a major economic revolution is what Japan needs most at the moment. The old corporate traditions of big cheap loans, zero costs of capital, inefficiency and poor profits (plus poor dividends, of course) have really got to go if Japan is going to compete in the international markets of the twenty-first century. In the last analysis, its investors will accept nothing less. And if we had any doubts about the long-term inevitability of this change, we wouldn’t be suggesting that you think about buying Japanese stocks now.

Investing In Asia - As Things Stand

At the beginning of this article we made a passing mention of a rather startling fact. The Nikkei 225, we said, has done well enough this year, but the Second Tier index on the Tokyo stock market has grown four times as fast. That’s a big discrepancy to find in any country. What’s going on?
Many analysts will tell you these days that it’s the Nikkei that is unrepresentative of the market and the Second Tier that’s getting it right. The Nikkei 225 is a fossil that’s hardly changed its composition since it was started 40 years ago. The Nikkei doesn’t include such modern giants as NTT DoCoMo, the world’s biggest mobile phone corporation and the biggest company in Japan; it does, however, include a whole range of tiny manufacturing corporations that used to be important a few decades ago and which now tell us virtually nothing about the state of Japanese industry.

Investing In Asia & Nikkei

Worse, the Nikkei is heavily loaded with the kinds of big consumer-oriented companies that are suffering worst at the hands of consumer reluctance - Sony, Nissan, Mitsubishi and all the big banks.

But rival indexes like the Second Tier (or the main-market Topix index, for that matter) will show you a better sampling of go-ahead firms like Softbank, a Japanese software company that’s now bigger in capital terms than the mighty Sony itself - and largely invulnerable to the consumer downtrend because it deals directly with businesses instead. If you make only one new year’s resolution this January, resolve to forget the Nikkei and watch the Topix instead.

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