Japan: The two-tier stock market
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Japan: The two-tier stock market

In the depressed Japanese stock market, foreigners are quietly raising their stakes. By the end of March this year, foreign ownership accounted for a record 13.4% of listed Japanese stocks, according to data from the National Conference of Stock Exchanges. The rate has been steadily rising for the past 10 years from 4.3% in 1988. Last year, ending March, saw a 1.5% jump in foreign investment, even as the overall market lost value.

Notably, foreign investors are switching out of the shakier sectors, like banking and construction, and digging deeper into blue-chip companies such as manufacturing, and into restructuring companies. Analysts say that the Tokyo market may roughly divide into two camps: a string of top, growth-oriented firms owned significantly by foreigners, and a host of lesser, largely Japanese-owned, players.

Compare Ito-Yokado, a giant retail chain owned extensively by foreign portfolio investors, which is on a roll, with Daiei, the biggest supermarket store now sinking further into financial difficulties. Noriyuki Fujiwara, director of Japanese equity at Credit Suisse Asset Management, says the contrast is clear: Daiei has expanded by borrowing limitlessly, leveraging its balance sheet to the hilt, and paying little regard to profitability; Ito-Yokado, which owns the profitable Seven-Eleven convenience store, borrowed sparingly and focused on profit margins and a healthy balance sheet.

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