Posted on: Sunday, December 14, 2003

Japanese guidebook on stocks reflects rise of ordinary investors

By Tomoko Yamazaki
Bloomberg News Service

Sunplaza Nakano spent the 1980s penning songs about his vain search for love with the rock band Bakufu Slump. These days he's on an equally elusive quest for fortune — in the Japanese stock market.

Nakano, co-author of a how-to investor's guide published in April, is playing to a growing audience. In the four years in which he has invested in stocks and lost a third of his capital, individuals' share of equity trading in Japan has doubled.

"For me, it's a way to stay attuned to society," says Nakano, 43, whose book "Kabubon" sold 17,000 copies in seven months.

Nakano's co-author, Monex Inc. President Oki Matsumoto, has reaped clearer rewards as Japanese individuals invest more of their $14 trillion of savings in stocks.

Monex, the nation's second biggest online broker, reported a second straight quarter of profit in October as account holders soared to 233,614, from 3,442 four years ago. Buying by individuals, spurred by a cut in trading taxes, helped drive a 47 percent rebound in the Nikkei 225 stock average.

"Investing in stocks has become fashionable," said Curtis Freeze, who oversees $350 million in Japanese assets as the president at Hawai'i-based Prospect Asset Management in Tokyo. He said Japanese people are buying stocks after losing faith in the government's ability to manage their pensions.

Investors significant

Individual investors accounted for 43.2 percent of trading on the Tokyo Stock Exchange in October, compared with 34.7 percent by overseas investors. Four years earlier, individual investors accounted for only 23.6 percent and foreigners 23.3 percent.

In the week that ended Oct. 24, individuals bought 257.6 billion yen ($2.4 billion) more shares than they sold in trading on three exchanges, the highest net purchase amount since Jan. 7, 2000.

By cutting taxes, "the government did what it needed to do to restore confidence," said Monex's Matsumoto.

Top executives agreed to interviews as part of the Q&A format used in "Kabubon."

"The market dynamics are starting to change, with information on the market becoming more accessible," said Atsushi Kawakami, chief investment officer at Invesco Asset Management Co. in Tokyo. "Money from individuals through online brokers is coming to our funds as well."

Tax cuts help

Monex's larger rival Matsui Securities Co. said second-quarter earnings nearly tripled, while the top three traditional brokers, Nomura Holdings Inc., Daiwa Securities Group Inc. and Nikko Cordial Corp., all reported surging profits on higher trading fees.

Trading was partly spurred by a temporary tax cut. The government cut taxes on dividends and capital gains to as low as 10 percent from as much as 50 percent.

Katsumi Minai, who helps manage 7 trillion yen at Tokio Marine & Fire Insurance Co. in Tokyo, says it will take more than lower taxes to eradicate the perception that buying stocks is tantamount to gambling. "The problem is at the core of Japanese people's thinking," he said.

The increased presence of individual investors has made volatility in share prices even worse.

Merrill Lynch Japan Inc. strategists Masatoshi Kikuchi and Hayato Nagayoshi said individual investors tend to focus on companies with mid-to-small market values, including Orient Corp., a consumer credit company, and Daikyo Inc., a homebuilder. Those are two of the 10 biggest gainers by percentage points on the Topix this year.

When stocks start to decline, individuals can be quick to reverse their positions in order to cover calls for money to cover their losses from brokers that lend them money, said Ichiro Takamatsu, who helps manage the equivalent of $3.8 billion in assets at Cigna International Investment Advisors Co. in Tokyo.

The overall market has also been volatile. Individuals remained net buyers on the nation's stock in only 19 out of 47 weeks so far this year.

Author's fortunes improved Nakano's losses since he started investing in October 1999 amount to 1 million yen of his 3 million yen during a period when the Tokyo stock market lost two-fifths of its value. His fortunes improved since his book came out.

He made money from the initial share sale by Wacom Co., a maker of computer displays and software, buying at 350,000 yen and selling above 800,000 yen. He bought Monex shares at less than 20,000 yen each in May and the stock now trades at more than double that price.

Other investments have slid, such as his shares of Jeol Ltd., a maker of scientific instruments, but that won't deter Nakano.

"There are no age restrictions to investing in stocks," he says. "You can be doing it even when you're an 85-year old granddad."