By Patrick Rial
Oct. 27 (Bloomberg) -- The last time Japan's Nikkei 225 Stock Average was at today's level, headbands and legwarmers were in, Steven Spielberg's E.T. topped box offices, and Michael Jackson's Thriller was about to be released.
That was 1982, the fifth year of a rally that pushed the Nikkei to nearly 40,000 by the end of 1989 in an asset bubble that purportedly made the land around the Imperial Palace as valuable as all of California. The Nikkei today slumped 6.4 percent to 7,162.90, the lowest since Oct. 7, 1982. That values its members at 8.6 times reported earnings, compared with about 70 times at the 1989 peak.
The measure's 53 percent tumble in 2008, fueled by the credit crisis, slowing economic growth and as the stronger yen threatened exporters' profits, has made shares ``shockingly cheap,'' said Peter Tasker, a strategist with hedge fund Arcus Investment Ltd. and Dresdner Kleinwort in Tokyo.
Shares on the Topix index, the broadest gauge of Japan's stock market, trade at 0.89 times book value, the first time the average has been below 1, according to Mizuho Securities Co. That means the companies would be worth more if liquidated.
Japan in the early 1980s was a different country from the one it is today, with the stock market akin to ``the wild, wild east,'' said Tasker, 52, who's been a resident since 1983.
``You had this feeling that almost anything was possible for Japan,'' he said. ``I'm shocked; the Topix has been trading below book, which we never saw even during the darkest days of 90s and in 2002 and 2003.''
Greed and Fear
John R. Alkire, chief investment officer, at Morgan Stanley Asset & Investment Trust Management Co. in Tokyo, which has about $40 billion in assets, expects the bottom will soon be reached.
``I would think the next big move is up, not down,'' said Alkire, a lifetime resident of Japan. ``We are most likely at a phase in this cycle where greed will likely soon replace fear.''
Back in 1982, Japan was just hitting its stride as the baby boom generation reached peak productivity. Inflation had been tamed through conservation efforts during the oil shock of the 1970s while the U.S. entered a recession resulting from Federal Reserve Chairman Paul Volcker's 15 percent interest rates.
Japan's vertically integrated electronics companies were the envy of the world as both the breadth of products and constant innovation gave them dominant market share.
Sony Corp. and Victor Company of Japan were battling for control of the home video market, with Sony's Betamax format gradually ceding position to VHS. In 2008, Sony redeemed itself with a video format victory for its Blu-ray high definition technology, besting Toshiba Corp.'s HD DVD.
Sony, Toyota
Sony's shares traded at an average of about 1,700 yen in October 1982 after adjusting for stock splits, compared with 1,821 yen the shares can be bought for today.
Toyota Motor Corp. launched its Camry brand in 1982. More than 12 million units have since been sold and it was the top- selling U.S. passenger vehicle for eight of the last nine years.
Toyota shares traded at 775 yen in October 1982, while the stock now is worth 2,940 yen.
``It was the age of equities until the bubble burst,'' said Yuuki Sakurai, 56, a general financial-planning manager at Fukoku Mutual Life Insurance Co. in Tokyo, which manages the equivalent of $54 billion in assets. ``People were much more optimistic about the future.''
Lost Generation
Then came the crash in 1990, followed by a generation of economic stagnation and deflation that ripped apart the lifetime employment system and saw once vaunted companies such as Yamaichi Securities Co. disappear.
Today, Japan is struggling with weak domestic demand and intensifying global competition for its largest exporters as the economies of Asia caught up. The median age in Japan was 32.5 in 1980; today it's 43.6, with three elderly for every two children.
While all the world's major stock markets entered bear territory this year, none have reached the lows set in Japan today. On Oct. 7, 1982, the Dow Jones Industrial Average closed at 965.97 and the Nasdaq Composite Index at 195.59. Today they stand at 8,378.95 and 1,552.03 respectively.
In Asia, Korea's Kospi Index was at 119.22 compared to today's 946.45 and Australia's All Ordinaries Index was at 508.7 versus 3,768.30 now. China was eight years away from the re- opening of its market.
Masayuki Kubota, a senior fund manager at Daiwa SB Investments Ltd. in Tokyo, who helps oversee $1.7 billion, thinks the stock market has echoed its excessive movement of a generation ago, but in the opposite direction this year.
``We're in a reverse bubble now,'' he said. ``Large mountains make deep valleys. It's an old Japanese saying and it's true for markets as well as economic cycles.''
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.
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