The announcement was
the kind of publicity Nasdaq Japan hardly needed. In late September, just three
months after mutual fund tracker Morningstar Japan listed on the new market,
Morningstar Chairman Yoshitaka Kitao said he was considering a new trading
platform. Who could blame him? Since the firm listed with Nasdaq Japan, its
stock is off 65%; most days, fewer than 10 shares change hands. If Kitao's
company, like Nasdaq Japan itself an offshoot of a U.S. concern, departs, it
will be especially awkward. Kitao doubles as a director at Softbank Corp., a
half-owner of Nasdaq Japan.
Is Nasdaq's first venture abroad going to make it? Not without a struggle.
Launched on June 19, Nasdaq Japan was to be a globally credible exchange where
Japan's ambitious startups could list. It would eventually offer local
investors the chance to buy Nasdaq stocks, too, as well as an index that tracks
the U.S. Nasdaq's top 100. But the new exchange was immediately hit by the
global slide in high-tech shares. It has also been hobbled by outdated rules
that make shares too expensive and a dearth of attractive issues. Nasdaq
officials insist they will solve these problems, but it's going to take time.
''Our true birth will be a year from now,'' says John L. Hilley, chairman of
Nasdaq International Inc., which is setting up Nasdaq exchanges overseas.
SAVIOR TO VICTIM. That's cold comfort for investors and young Japanese
companies eager to go public. Nasdaq Japan was supposed to bring order to
Japan's venture market, which was dominated by the Market of High-Growth &
Emerging Stocks, or Mothers, a hastily built affiliate of the Tokyo Stock
Exchange. Nasdaq Japan had stricter listing rules, sophisticated technology,
and a stronger pool of Internet companies. But in one short summer, Nasdaq
Japan has gone from savior to victim. The market now lists just 30 stocks--a
third of which, like Morningstar, average volume of fewer than 10 shares daily.
As for trading into the U.S. market, that's not due to start until well into
2001.
The rout in tech stocks has certainly hurt. The Bloomberg Japanese IPO index,
which measures stocks listed within the previous year, is down 25% since its
launch on June 30. And with Nasdaq Japan's complex computers still to be
installed, the exchange is using the Osaka Securities Exchange's auction-based
trading system, which is fine for a large-volume market--and a disaster for
Nasdaq Japan. Volumes are so low that every buy drives up prices and every sale
exaggerates declines. ''We'd love to get in, but it's just too illiquid,'' says
David Scott, who manages $2.3 billion in small-cap funds for Jardine Fleming
Asset Management Ltd.
Retail investors are shut out by high share prices. Japan's Commercial Code
stipulates that companies must have at least 50,000 yen in assets for every
issued share. Thus, even Net startups must issue shares that cost tens of
thousand of dollars each. Morningstar Japan sold 1,000 shares at its IPO for
$65,100 apiece. The government is mulling a rule change, but no action is
imminent.
That leaves companies such as Morningstar marooned. Nearly two-thirds of listed
stocks have fallen since their IPOs. Companies such as Cisco Japan and Yahoo!
Japan have reportedly backed away from listings. And investors are focused on
this month's tranche of Nippon Telegraph & Telephone Corp. stock and the float
of Sky Perfect Communications, a satellite TV distributor due to list on the
TSE's Mothers.
Nasdaq Japan execs are working hard at repairs. They hope to add 20 more local
stocks this year--and 100 more in 2001, as well as more U.S. shares. They also
intend to offer about 15% of Nasdaq Japan to a consortium of 13 Japanese and
Western brokerages to give them a stake in the exchange's health.
Nasdaq Japan is not the only casualty of the tech wreck. Volume on Mothers is
just a seventh of that on Nasdaq Japan. Hong Kong's Nasdaq is also a flop. The
new markets hope they can survive the bear market in tech. It could be a long
wait.
BW MALL
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