Active Investing in Japan

Stocks surged early and held up nicely in Tokyo, that is, until the start of the afternoon session and profit-taking. However, word on the street is that around 2pm pension fund buying helped recover the earlier highs — in fact, producing the seventh largest percentage gain ever for the N225 (7.7%).

*I had to remove the Clipmarks because it auto-updated the Nikkei 225 chart making it irrelevant to the day’s action. Anyway, here’s one of the day’s headlines: 日経平均は５８９円高と大幅続伸し高値引け、公的年金買い観測＝東京市場・２９日後場.

See the clip below (re. cross shareholding) from an article discussing Japanese stocks at a 26-year low (as of Monday’s close) in yesterday’s Wall Street Journal. Earlier this week I discussed cross shareholdings in Poisonous cross shareholdings may be helpful in reaching a quicker bottom.

clipped from online.wsj.com Japan’s banks, in particular, had seemed to be in good shape. Remaining cautious after their bad-loan problem, they largely avoided exposure to U.S. subprime mortgages. But the falling shares highlight one area of weakness. Japan’s banks are allowed to invest some of their capital base — the pool of funds against which they lend money — in stocks. The practice is a legacy of the traditional practice of “cross shareholding,” where banks and their borrowers held stakes in each other to cement ties. Such holdings by Japan’s banks now represent about 3% of the value of the Japanese stock market. Mitsubishi UFJ held a portfolio of Japanese stocks valued at 6.1 trillion yen, with unrealized gains of 1.8 trillion yen, as of June. With Japan’s stock market falling 40% since then, the portfolio is estimated to have shrunk to less than 3.7 trillion yen, representing a valuation loss of 630 billion yen, according to an estimate by Kristine Li, a banking analyst for KBC Securities in Tokyo.