Investors flock to Japan's stock market

As Japan’s economy sees a glimmer of light after more than a decade in the doldrums, growing ranks of analysts and economists say the country’s stock market is lined up for a boom.

Top companies are posting solid earnings. A leading brokerage has singled out Japanese equities as a hot pick of the year. One company is renting out trading terminals to the country’s increasing number of individual investors.

“The optimism is well-founded,” said Richard Jerram, chief economist at ING Securities in Tokyo. “You can find a variety of reasons to be positive on the equity market.”

Tokyo’s benchmark Nikkei stock index has rebounded 60% in the last year after hitting a 20-year low last April, riding an economy with a robust annual growth rate of 6.4% in the final quarter of 2003 – its most brisk performance in 13 years.

The government says business sentiment in January-March was at its highest in 15 years. Recent reports from the World Bank and International Monetary Fund show corporate restructuring and surging exports could be nudging Japan toward a sustainable recovery.

In one glowing report in April, global fund managers surveyed by US investment bank Merrill Lynch said Japanese companies now have the best earnings prospects in the world. Of 273 managers questioned, 38% said they would like to increase their investments in Japanese stocks.

“Japan now vies with Emerging Markets as the most undervalued equity market region in the world,” the report said.

During the booming 1980s economy, fortunes were made in Japanese equities. But that was before the speculative bubble burst in the early 1990s – and the market lost two-thirds of its value.

No one is predicting a return to the days of a Nikkei Stock Average at 30,000 points. It finished trading in Tokyo on Friday at 11,761.79 points.

But economists say the signs of recovery are more solid than they have been in years.

Mr Jerram said improvements in the balance sheets of banks – saddled with huge, non-performing loans after the end of the bubble economy – set this rebound apart from earlier false starts.

“There’s the possibility that this becomes more than just a recovery of the type we’ve seen before,” he said.