Individual Japanese Investors Rush Into Stocks

Japan's individual investors, armed with $7 trillion in bank deposits, 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 $10.2 billion of stock last month, according to Tokyo Stock Exchange data released Friday. New accounts at SBI Securities and Rakuten Securities, Japan's two largest online brokerages, were opened in October at double September's pace, the companies said.

The purchases came in a month when overseas investors dumped most shares since March, exchange data showed. That selling dragged down the Nikkei 225 stock average to 7162.90 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 in Tokyo. "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 and Panasonic, 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.

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 in Tokyo. The Nikkei slumped 9.9 percent Thursday and Friday to close at 8583 last week, 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 Thursday on its Web site. SBI is Japan's largest online brokerage with over 1.7 million customers.

"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."