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Bottom Fishing For Japanese Stocks

Personal Business: Smart Money


It may not be too late to go bargain-hunting in the battered Japanese stock market. Although Tokyo's announcement of an $86 billion pump-priming package last month has sent the Nikkei up about 25% since mid-August, the average is still off more than 50% from its high of two years ago. And while the moves boosted investor confidence, they won't turn the Japanese economy around overnight. So, say some analysts, there's plenty of time left to play the recovery.

"The market now offers more fair value in Western terms," says Robert Brusca, chief economist at Nikko Securities International. Brusca thinks that by buying American depository receipts (ADRs) of Japanese companies, individuals can get "some exposure without getting in over their heads."

Not every Japanese business issues ADRs, but you can find an attractive cross section. Elizabeth Allan, portfolio manager of the $400 million Japan Fund, cites Kyocera, a ceramics producer that also makes insulation for integrated circuits--and should profit from an upturn in electronics. Trading at 27 times earnings vs. an average p-e ratio of 37 for Nikkei-listed shares, Kyocera is "pretty cheap," says Allan.

Another bargain she likes is Canon, with a p-e of14 and a good chance to rebound along with consumer demand. Stanley Ginsberg, senior vice-president at Daiwa Securities America, agrees that Canon has "probably bottomed out." He also notes that as a big exporter, Canon can "ride the strengthening U.S. and European economies."

`HAMMERED.' Among retailers, Allan says Ito Yokado has been "a bit of a laggard in this market." The superstore chain, which sells everything from necessities to luxuries, is likely to profit from the eventual upturn in consumer incomes.

Analysts say investors should shop carefully among the Japanese banks. "But they have gotten hammered so hard in the past two or three months that they're probably grossly oversold," says Daiwa's Ginsberg. On Daiwa's recommended list is Mitsubishi Bank, which has suffered less from scandal and bad real estate loans than some of its competitors.

Of course, you can always opt for a mutual fund, such as Allan's Japan Fund, Merrill Lynch Pacific Fund Class A, Nomura Pacific Basin Fund, or the brand-new Japan Equity Fund. Launched by Daiwa on Aug. 17, Japan Equity is invested in "first section" stocks--shares in Japan's biggest companies.

The pros warn that the Nikkei could dip again before yearend. But even if you don't buy right at the bottom, it could pay to get in before Japan once again becomes the land of the rising stocks.BETTING ON A REBOUND

Company 52-week Price

high 9/1/92

Canon 60 1/8 52 1/2

Ito Yokado 149 1/4 132

Kyocera 88 60 1/2

Mitsubishi Bank 22 3/4 18



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