Many foreign investors looking to Tokyo stocks for rising sums
Tokyo — The same yelling, hand signals, and floor customs would be found in stock markets around the globe. But Tokyo's exchange - second in capitalization after Wall Street, with 1,740 listings and a third of the volume normally seen on the Big Board - still retains uniquely Japanese characteristics.
The market includes all the high-tech and consumer electronics issues a foreign investor would expect to find here, but there are others as well. Steel, pulp and paper, broadcasting, and ''low'' tech help make up an exchange that saw some $39 billion worth of foreign purchases last year. Probably a billion dollars of that came from Americans, who have nearly doubled their purchases since 1982.
Market analyst Bert Dohmen-Ramirez in Honolulu sees opportunity in Tokyo. ''Japanese companies work with high leverage,'' he says, ''so venture capital will make them increasingly more competitive in high-tech.''
The Tokyo market has performed well in recent years and recovered in full from lackluster days after the oil shock of 1973-74. The Nikkei-Dow hovers in the 9,000-10,000-point range today and continues to draw substantial Western capital despite problems with some key stocks. The most active stocks are Nippon Steel, Mitsubishi Heavy Industries, Fuji Film, Asahi Chemical, and Oki Electric.
A system called American Depositary Receipts (ADRs) allows American investors to buy stocks in the foreign currency and ease otherwise-hefty commissions. And many are taking note of gains on Hong Kong's Hang Seng index and Sydney's All Ordinaries index.
Yet Tokyo remains the focus of most investors. Pension funds and major investment houses are active here, while scads of new players are coming into the game. Not all make out well.
Some differences confound Westerners. Since only earnings of parent companies are reported, much information is concealed, and accounting procedures are still at odds with those seen outside Japan. There is no Securities and Exchange Commission, yet native investors demand real property or other forms of tangible security for bonds issued by corporations.
''What people must watch out for,'' says Francois Lachelier at Yamaichi Securities in New York, ''is to deal with American firms experienced in Japanese investing. They number about 100 to 150. A few large firms have branches in Tokyo to research and penetrate these markets.''
A closely knit brokerage faction calls many of the shots in Tokyo. Nomura, now the largest securities company in the world, leads a band of four or five brokerages that handle as much as 65 percent of all trading. Nikko, No. 2, commands only half the volume of its bigger brother. Daiwa and Yamaichi follow. There are hundreds of other firms, but Japan's societal fabric has woven close relationships. The investment community is made tighter by large institutional holdings.
Information is vital in Tokyo, and ''clubs'' formed by brokerages portray themselves as conduits of hot tips. The 84 seats cost about $4 million each; companies are allotted only one each on this exchange. Foreigners, who have only a dozen seats on the exchange, are vying for inroads into the information network.
Perils may await the less informed. Many good issues are overbought, and some have price multiples running 50 times current earnings. This situation of high price/earnings ratios and low yields makes many investors cautious. High-tech stocks, and even some biotech issues, appear overvalued. In the early summer, many foreigners sold billions of dollars in Japanese shares, sensing that some of the old ''miracle'' had lost its luster.
Most, however, see basic strengths in Tokyo. An analyst with Vickers da Costa (recently purchased by Citicorp) notes that ''if you want to invest in video, you can't buy anything but Japanese.'' But the same liberalization that makes this exchange a vital hub of world commerce is bringing with it a new era.
Some analysts say Japan's pension funds are preparing to get into the action in a big way. A new ''Jasdaq'' over-the-counter market would give access to small and medium-size companies seeking funds. These OTC trades, which had a volume of 1.4 million shares monthly last year, are now running in excess of 10 million each month. Japan has worked to end problems with commission rebates, although 27 percent commissions on some trades disturb some foreign analysts.
One big shift in the making is a merger of the financial and securities industries. As in the United States, brokerages are trying to turn themselves into ''financial supermarkets'' and, given the astonishing credit card boom in this country, this transformation seems likely to have an impact on the exchange.
Surprisingly, the Tokyo market is not where most of the titan corporations get their funds. Japanese tycoons rely on European money markets, with bonds offered under condition they be exchanged for corporate shares in the future.
One rule for profiting on the Tokyo exchange is remarkably similar worldwide: ''Any time that American investment houses spend out in the field is invaluable, '' declares Jeremy Hoskings of G. T. Pacific, a $40 million mutual fund with heavy Japanese holdings. ''This market requires a good deal of study.''