Fukoku's Sakurai Says Japan's Equity Bear Market Isn't Over

By Patrick Rial and Junko Kikkawa

Oct. 30 (Bloomberg) -- The Nikkei 225 Stock Average's three- day surge from a 26-year low doesn't mark the end of a bear market, and shares are likely to move lower by December, said Yuuki Sakurai of Fukoku Mutual Life Insurance Co.

The global financial crisis, which has toppled institutions such as Lehman Brothers Holdings Inc. and prompted bailouts worth about $3 trillion, isn't over, said Sakurai, who helps manage the equivalent of $54 billion in assets at Fukoku Mutual. That means investors will continue to favor Japan's yen as a safe haven to the detriment of the nation's exporters.

``There are still storms coming up on the horizon for the financial institutions of Europe and the United States,'' he said. ``Japanese exporters' shares are very vulnerable to the currency rate, and people still want to buy yen.''

The Nikkei 225 rose 4.1 percent to 8,551.05 as of 10:43 a.m. today, bringing its three-day climb to 19 percent, the most since at least 1970. The measure fell to the lowest since 1982 on Oct. 27, extending its decline for the year to more than 50 percent.

The yen traded at 98.50 versus the dollar today, compared with as high as 90.93 at the end of last week. A stronger yen cuts the profitability of Japanese companies' overseas sales, and has caused companies like Sony Corp. to reduce profit forecasts. Risk aversion may cause the yen to surge again, Sakurai said.

Valuations may be low, but investors are likely to get better deals by waiting, he said. More than 70 percent of companies on the Topix index traded below book value, or the net value of assets, on Oct. 27. Shares also traded below 10 times trailing earnings for the first time since at least 1989, when Bloomberg began compiling the data.

Banks are pruning shareholdings while hedge funds are facing redemptions, causing stocks to be sold in spite of cheapness, a trend that is likely to continue till December, he said.

``Foreign investors dominate trading in Japan, and as long as they are shrinking their assets, a rebound is hard to fathom,'' Sakurai said. ``There's no need to rush in and buy now, it's better to watch and wait.''

To contact the reporters for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Junko Kikkawa in Tokyo at jkikkawa@bloomberg.net