Japan's `Clever' Individuals Ride Rally as Funds Sell

By Patrick Rial and Toshiro Hasegawa

Nov. 7 (Bloomberg) -- Japan's individual investors, armed with more than $7 trillion in cash, piled into shares trading at their cheapest valuations ever last month, even as the global credit crisis prompted overseas fund managers to sell out.

Individuals bought a record net 993 billion yen ($10.2 billion) of stock last month, according to Tokyo Stock Exchange data released today. New accounts at SBI Securities Co. and Rakuten Securities Co., Japan's two largest online brokerages, were opened in October at double September's pace, the companies said yesterday.

The purchases came in a month when overseas investors dumped 1.07 trillion yen of shares, the most since March, exchange data showed. That selling dragged the Nikkei 225 Stock Average to 7,162.90 on Oct. 27, the lowest since 1982, giving it the cheapest valuation of any developed market. The gauge rallied 20 percent since then.

``Individuals are the most clever out of any investor group, in my opinion,'' said Tomomi Yamashita, a fund manager at Shinkin Asset Management Co. in Tokyo, which oversees about $5.5 billion. ``Going forward, the individuals will provide a solid floor for the market and keep it from collapsing.''

Conservative investments have left Japanese individuals with the cash to acquire stocks as some of the world's biggest companies such as Toyota Motor Corp. and Panasonic Corp. traded at record low valuations. Stocks on the broader Topix index fell to 0.83 times the net value of assets on Oct. 27, an all-time low and the cheapest among developed nations.

Household Assets

Japanese household financial assets totaled the equivalent of $15 trillion as of June, with more than half of that in cash, according to data from the Bank of Japan. Stock and mutual fund holdings accounted for 13.9 percent of total assets. In contrast, U.S. households have 17 percent of their assets in deposits, with 50 percent of wealth tied up in stocks and pension funds.

The tendency for stock rallies to fizzle means investors may stop buying and lock in their gains, said Hiroshi Morikawa, senior economist at MU Investments Ltd. in Tokyo. The Nikkei slumped 9.9 percent the past two days to close at 8,583 today, snapping a 33 percent surge over the previous six days.

``Individuals are bottom-fishers; they're not the kind of investors who get carried away with optimism and keep buying,'' Morikawa said. ``They'll turn to sellers once we see a short- term bounce.''

More than 23,000 new accounts were set up in October at SBI Securities, the company said yesterday on its Web Site. That was double September's figure. SBI is Japan's largest online brokerage with over 1.7 million customers.

New Accounts

Rakuten Securities, the No. 2, had an increase of 13,054 last month, the most new accounts since June 2006, while third- ranked Matsui Securities Co. had 8,834, also twice as many as September, according to their Web sites.

In October, Japanese domestic mutual funds bought 44 billion yen, while purchases by trust banks, which typically manage accounts for pension funds, totaled 1.2 trillion yen, today's exchange data show.

Individuals bought a net 73.8 billion yen in Japanese stocks last week, marking a sixth week of purchases, which is the longest streak since 2001. Foreigners sold 422 billion yen in shares last week, the most since August.

``Individuals came in to buy when everyone else was panicking,'' Shinkin Asset's Yamashita said. ``But they'll be locking in those profits as the Nikkei gets closer to 10,000.''

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.