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Video #2 - Small Cap Stocks In Japan

Friday, January 06, 2006

sources | lesson plan


BACKGROUND INFORMATION

One of the signs of recovery for Japan's economy is the health of the stock market. AFP (Agence France-Presse) reported from Tokyo on January 21 that share prices are expected to b ounce back in the coming week after investors took a breather and locked in profits on information technology stocks. The market should be supported by buying from new investment trusts to be set up in the coming week and investor's increased interest in overlooked issues such as pharmaceuticals and chemicals, brokers said. "The market's consensus on the economy, which is recording a mild growth, is a brief correction phase and it is supported by strong exports and expectations for further fiscal stimulus from April and forward," said Masaaki Higashida, senior market analyst at Nomura Securities.

During the past week, the Nikkei average of 225 selected issues lost 78.46 points, or 0.4 %, to 18,878.09 after it rallied 4.2 % during the preceding week. Daily turnover on the first section averaged 649.2 million shares, compared to 695.3 million shares a week earlier. The daily value of transactions averaged 914.2 billion yen (8.8 billion dollars) against the previous week's 1,137.6 billion yen.

"Although good corporate earnings are good news, New York shares are likely to continue easing in the coming week on expectations for an interest rate hike," Nikko Securities' senior market analyst Kazue Mayuzumi said. "The Nikkei average is expected to fall if the New York market falls, but new large investment trusts being set up should keep the index from falling sharply," Mayuzumi said. On January 6, Reuter's reporter Yuko Inoue announced that Sony Corp's president Nobuyuki Idei said that his company's shares were overvalued. His remarks unleashed a "Sony shock" slide in Japan's high-tech sector which drove the Tokyo index lower. Idei said that 20,000yen ($192) was an appropriate price for his company's stock, given its current earnings levels. Anything above that would be "a bubble." Analysts said that his remarks were on the mark. Hitoshi Kuriyama, analyst at Merrill Lynch Japan said "Sony's stock prices had climbed too high, too fast, with expectations getting ahead of reality. It has now moved into a "normal adjustment phase." The shock warning also shook investor confidence in similar high-tech issues which have climbed in recent months amid a frenzy for Japanese technology stocks. The above mentioned "correction phase" is on the way.

Another development of the Japanese market is that investors seem to be following a trend of investing in small companies. The over-the-counter market in the U.S. is where approximately 60,000 securities that are not handled by the stock exchanges are traded. Stock brokers, in contact with one another by telephone and computer, keep track of the changing prices of these securities. They act as go-between for buyer and seller. The same process exists in Japan, the OTC is considered a stepping stone into the more prestigious Nasdaq(National Association of Securities Dealers Automated Quotation System) and Tokyo Stock Exchange. Nikkei/Dow Jones reported from Tokyo in January 26 that stocks traded over the counter closed higher for the third straight session. According to traders, individual investors and brokerage dealers showed strong interest in issues with large market capitalization.

"Market sentiment was probably improved by the fact that such high-priced issues as Oracle Corp. Japan and publishing company Shoeisha Co. set record highs amid concerns about a sell off to avoid margin calls and investment trust fund unloading," said an official at the equity division of Tokyo Securities. There were growing expectations that bargain-hunting by investment trusts and buying linked to new investment trust products would support the market, one trader said. The Nikkei Over-the-Counter Stock Average rose 68.41 points, or 3.2% to finish at 2188.61 on volume of 134.2 million shares. The launch of several Japanese investment trusts on Friday, January 28 and a major investment trust next Wednesday spurred buying interest in information technology issued which many analysts expect to gain heavy weight in in the portfolios, traders said. "Large-cap newcomers are currently the key driving force ahead of launches of investment trusts today and early next month," said Hidenori Kawasaki, general manager at Kokusai Securities Co's equity department.

"Tokyo is getting less affected by the recent instability in New York," Kokasai Securities' Kawasaki said. In contrast with a two-day setback in the technology-based Nasdaq on Thursday, high-tech issues in Tokyo were broadly higher in heavy trade. Among them were Sony Corp., Matsushita Electric Industrial and Fujitsu Ltd. Additionally, the "Big Bang" reorganization of Japan's financial industry opened up the way last December for banks and life/non-life insurers to begin selling over-the-counter investment trust, similar to mutual funds in the U.S., which these firms hope to turn into core products soon. The lifting of the ban on the over-the-counter sale of investment trusts by banks handling deposits has triggered a surge of interest. Interest rates in Japan are at a historical low, and interest on ordinary bank deposits is less than 0.1%. Thus, despite the greater risk, some people have shifted funds into investment trusts in search of higher returns. some analysts believe investment trusts will grow in the near future to account for 10% of personal financial assets, on a par with the U.S., and if this does indeed occur, the market could be worth 100 trillion yen (US$830 billion).

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SOURCES:

Ando, Ritsuko, "Nikkei rises on view new trusts will boost demand." Yahoo Finance Reuters, Tokyo, January 28, 2000. Anonymous, "Modest rebound expected in Tokyo stock market." Yahoo News Asia AFP , January 21, 2000. Anonymous, "Japan OTC Stocks End Up; Market Sentiment Seen Improving." Yahoo Finance Asia Dow Jones, January 26, 2000. www.nasdaq.com www.smallcapdigest.com japanfinancials.com jetro (Japan External Trade Organization).com

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LESSON PLAN

GRADE LEVEL/SUBJECT: 10-12/Economics, International Relations, World History, International Bachelaurate Programs(IB), Current Events.

PURPOSE: to present activities to be used at a variety of classroom situations in order to enhance student understanding of Japanese economy and its significance globally.

OBJECTIVES: Students will be able to:

  1. Describe the functions of a variety of stock markets: Nasdaq, New York Stock Exchange, Tokyo Stock Exchange, SmallCaps Securities, Over-The-Counter Stocks.
  2. Compare and contrast the activities of the stock markets mentioned above.
  3. Analyze the present role of the OTC market and the SmallCaps market in the Japanese economy. In the U.S. economy.
  4. Experience stock market trading.
  5. Evaluate the role of the different levels of trading in a nation's economy.
  6. Evaluate the assets and liabilities of trading in the small caps market.
  7. Forecast the effect of investment trust funds in the Japanese stock markets.

MATERIALS:

  1. Background information provided.
  2. Resources on the over the counter market and small cap equities companies available at your school's Media Center and the Public Library System in your area.
  3. Background information available through Internet "search engines".
  4. www.nasdaq.com
  5. www.smallcapdigest.com
  6. japanfinancials.com
  7. jetro (Japan External Trade Organization).com

ACTIVITIES:

  1. Play a "Stock Market Game" in class by allowing each group or individuals an amount to invest on stocks in the different markets and having them compete to see who makes the most money in a set amount of time. Have students write journal entries evaluating their experiences.
  2. Have students research the differences and similarities between the stock exchanges in the U.S. and those in Japan. They may use a Venn diagram to organize their information. (This activity may be extended to exchanges in other parts of the world.)
  3. Research and report on the history of the stock exchanges mentioned.
  4. Write an editorial on the importance of the stock market in a nation's economy.
  5. Design a newsletter for OTC stocks and SmallCaps Securities in the U.S. and or Japan.
  6. Write a newspaper article analyzing the pros and cons of small caps trading.
  7. Compose an editorial about the use of investment trust funds in Japan.

EVALUATION: Individual assignments should be graded by the teacher using established criteria. Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale:

Content 1= Superior (A) Creativity 2= Excellent (B) Clarity 3= Good (C) 4= Fair (D) 5= Poor (F)

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