Japan's industrial groupings unravel in lengthy recession

PUBLISHED : Friday, 19 November, 1993, 12:00am
UPDATED : Friday, 19 November, 1993, 12:00am

THE wave of massive stock sell-offs by Japanese corporations should peak this year but the impact will be felt long afterwards, an analyst says.

Kathy Matsui, investment strategist with Barclays de Zoete Wedd, noting that many of the stocks being dumped were cross-shareholdings, said the effect would come as traditional keiretsu (industrial groupings) ties unravelled in the harsh realities of prolonged recession.

She said: ''The only rationale for maintaining a keiretsu interest is to keep outside intruders at bay, or if you get some business advantage.

''But if there is none and a manufacturer starts to source his supplies outside Japan, what reason is there to keep them [cross-shareholdings]?'' While saying the corporate sell-off could end soon, Ms Matsui conceded there could well be another rush in February or March ahead of full-year book closings.

Some of Japan Inc's biggest names - Nissan, Nippon Steel and Mazda - have been selling off huge amounts of stocks to cover dividend payments and dress up their balance sheets as they head towards a fourth consecutive year of declines in results.

The hard times are forcing a re-evaluation with long-term implications for the structure of Japanese shareholdings.

Divesting themselves of their mutual cross-shareholdings or mochiai is seen as defying a long-held taboo.

Loyalty to other companies is dissolving as firms fight for survival while keeping faith with their employees.

Four years into the downturn, most of the cost-cutting has already been done short of redundancies, but covering losses by liquidating shareholdings is seen as less painful and preferable.

The yen's strength and the impending opening of Japanese markets to foreign firms as a result of deregulation have driven the wedge in further.

''If deregulation is to be pursued seriously, Japanese companies must be competitive in terms of volume and price in the domestic market against each other and foreign imports,'' said Alan Bell, head of research at Schroders.

''Not having to compete against each other was the reason the cross-holding system was put together in the first place. It does call into question the whole purpose of cross-shareholding. It won't collapse but it will erode almost certainly,'' he said.

And in a departure from past practice, poorly performing shares which are being dumped by the corporations are unlikely to be re-purchased later.

In the 10 months to the end of October, Japanese companies were net sellers of Japanese stocks to the tune of 1.8 trillion yen (about HK$129.6 billion), five times the total for the whole of 1992.

Much of the selling - 700 billion yen worth - came in June, July and September ahead of the interim reporting season, contributing to the recent decline in Tokyo share prices from the Nikkei's near 21,000 level to 18,000.

With dismally low trading volumes, there are fears that share prices could be further depressed if the sell-off continues at current levels.

''There is adverse pressure from margin selling and index players who hold a lot of stock and are lightening as well as corporations selling shares,'' said Mr Bell. ''The big question is: who is left to buy them?''