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IS JAPAN MENDING?Maybe--but the market is not for the squeamish
With big gains less likely in New York, London, or Frankfurt, the Nikkei bulls argue, this is not a party to miss. Indeed, after hitting a 12-year low, the Nikkei has already climbed 11%, to around 14,000. To be sure, the Nikkei has disappointed many times before--and current business sentiment remains dreadful. But this time, the optimists argue, is really different: A worried Japan is finally in full crisis mode. The government recently nationalized the troubled Nippon Credit Bank, and some $700 billion has now been set aside to salvage crippled lenders, cut taxes, and boost public spending to pull Japan out of a severe recession. Lehman Brothers analysts Robert Zielinski and Nozumu Kunishige argue that the big beneficiary of such efforts will be bank shares, which they maintain will jump in the first quarter as major lenders receive government cash infusions and write off bad debts. ATTRACTING FOREIGN CASH. Many corporations, meanwhile, are casting gimlet eyes at their bloated costs and high debts. Even such one-time critics of the government as Nomura Research Institute Ltd. Chief Economist Richard Koo thinks the economy will improve dramatically in six months as banks recover and consumers start spending. That, he says, will draw more foreign cash into the Nikkei. Having been burned before, however, even the bulls are investing with care. Until he sees solid evidence that companies are getting rid of surplus labor and capacity, says Jason James, equity strategist for HSBC Securities Japan Ltd., ''we are still fairly defensive.'' Favorites on his list include Honda Motor Co., whose U.S. sales are soaring while it picks up market share at home. He also likes Olympus Optical Co. with its dazzling lineup of digital cameras. More daring investors are moving into the nation's biggest regional lender, Bank of Yokohama. It has relatively low bad-debt exposure and a strong retail banking base. It's also trading with a forward price-earnings ratio of 49, rich by U.S. standards, but modest compared with the 60 p-e for other Japanese regional banks. Stock pickers are also warming to housing plays. If the government agrees to a Liberal Democratic Party proposal to allow consumers to deduct mortgage interest, stocks such as upscale homebuilder Sekisui House Ltd. could win big. Indeed, it gained 50% in 1998. Despite the rising optimism, Japan remains a market only for those with a particularly strong stomach. The Nikkei is still off 67% from its 1989 peak, and four big rallies have collapsed after carrying the average above 20,000. But even bearish prognosticators are beginning to wonder if they should change their tune now that corporations and the government finally seem to be getting serious about generating an economic recovery.
By Brian Bremner in Tokyo RELATED ITEMS
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Updated Dec. 17, 1998 by bwwebmaster
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