Small Investors Tiptoe Back In

With profits recovering and the market up this year, Japanese are trading again

On a warm spring evening in Kabutocho, Tokyo's chief trading district, nearly 200 men and women gather in a spacious auditorium in the stock exchange building. The group nods earnestly as an independent financial planner walks them through the basics of how to manage their savings. Topic A: investing in stocks. "I've never done stock investment before, and I still think it's a gamble," says Akiko Hasegawa, 29, who works for a Tokyo credit-card company. "But my salary won't increase much, and savings alone won't be enough, so I'm concerned about my future."

That's a big change. Since Japan's stock-market bubble burst in the early 1990s, individual investors have been about as scarce in the markets as steaks in a sushi bar. Yet recently, as the Nikkei extends its 23% rally of 2003, individual investors have made up 40% of the trading on Japan's exchanges, compared with an average of just 23.8% in the previous four years. That has bolstered trading volumes to levels not seen for a decade. "In the past few weeks, individual investors have been buoying the Japanese market," says Hideyuki Takahashi, president and chief executive of Nomura Holding America.

The question is how committed these individuals will stay to the market, given the crash course they just took in risk. On May 10, the Nikkei plunged 554 points, or 4.8%, on fears of higher interest rates in the U.S., which could crimp sales by Japan's exporters. But even with its recent swoon, rising corporate profits have pushed the Nikkei up 35.7% in the past year. And with bonds and savings accounts in Japan still paying near zero, "individuals will remain a force in the stock market because there are few alternative options available," says Kathy Matsui, chief strategist at Goldman Sachs (Japan) Ltd. (GS ) in Tokyo.

The big brokerage firms are counting on these factors to lure more individuals to stocks. It has been a long time since ordinary Japanese felt at ease in the market. After topping out at 38,957 in late 1989, the benchmark Nikkei index started a long slide that took it to a low of 7,603 a year ago. In those years, the Tokyo Stock Exchange earned a reputation as little more than a casino -- and small investors felt burned by brokers, who charged high commissions and disdained the retail trade. "They didn't care whether their [retail] clients lost money or not as long as they got commissions," says Shizuko Kitamura, director of the Japan Association for Individual Investors, a nonprofit group that lobbies for laws and regulations that protect retail investors.

For more than a decade, the small fry stayed away. And today, the $12.4 trillion in assets held by Japanese households are invested mostly in savings accounts or government bonds paying no more than 1% a year. Less than 5% of total personal wealth is in equities. Even most domestic institutional investors, like pension funds, insurance companies, and mutual funds, have stayed away from stocks. The biggest single investor group today: value-oriented foreign investors, who own 56% of Japanese stocks.

In the past few months, though, efforts by the Japanese finance industry to woo individuals have started to pay off. Online brokerages have flourished, which has helped cut prices. Buying 100 shares of Sony, for example, at $36 a share, would cost $53 at Nomura Securities (NMR ) but as little as $9 online. And Japanese companies are now courting smaller investors by allowing trading of shares in smaller lots. On May 6, for instance, Canon Inc. (CAJ ) dropped its minimum purchase requirement to 100 shares from 1,000.

In Kabutocho, "there used to be only traders in business suits on the streets, but in the last few months I've seen lots of ordinary men and women coming by train to attend classes on stocks," says Masayoshi Okamoto, a career trader at Jujiya Securities Co. If the market steadies, Japan's masses are bound to keep coming back.

By Hiroko Tashiro in Tokyo, with Chester Dawson in New York

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