Only a matter of days ago the Japanese market could do no wrong. Despite seeing Tokyo shares rise 40% in 2005, most analysts and managers remained convinced that 2006 would be another good year. If so, it hasn’t got off to a very good start.
By Wednesday, more than $300bn had been wiped from the market’s value (the equivalent of the GDP of a country the size of Sweden, pointed out the Evening Standard); the Nikkei had fallen chaotically for two days in a row – ending Wednesday down 3%, its biggest fall since April last year; and the market eventually had to be closed early.
The trigger for all this carnage was a police raid on the offices of internet services group Livedoor, now accused of releasing false information to boost the share price of a subsidiary and of booking illegal profits, says Japan’s Yomuri Shimbun. Livedoor shares fell 14% before being suspended. But Livedoor wasn’t the only big firm in trouble this week. Intel and Yahoo both disappointed investors with their revenues, with the result that tech stocks fell across the board, and AstraZeneca suffered from an “adverse legal judgement”, said Edward Hadas on Breakingviews.com. Shares in the US and Europe then fell accordingly.
But none of this should worry investors unduly, says Hadas. Yes, there has been bad news for a few firms, but “there are too few dots to connect into a picture of a great stockmarket decline” around the world. The equity market relies on “easy money, good revenues and strong overall profitability”, none of which looks to be under serious threat. Consider this week’s events to be “more like a short bout of panic than the beginning of the end”.
That is definitely the way to look at the problems in Japan. Last week, the International Herald Tribune pointed out that, thanks to years of restructuring, Japan’s corporate balance sheets are strong, its costs are as low as they are going to get and its managements are focused on profits. At the same time, both consumption and capital expenditure appear to be on the up.
So for those not already heavily invested in Japan, this week’s hiccup can only be seen as good news. As Jonathan Allum of KBC puts it in the Blah, “when the dust clears we could end up with a good buying opportunity in all sorts of eminently respectable stocks”.
Published in Stock markets
| More articles
by
Annunziata Rees-Mogg
Related articles
-
By John Stepek, Jul 18, 2008
-
By John Stepek, Jun 18, 2008
-
Jun 17, 2008
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
