Most investors consider the run in Tokyo stocks temporary, but some think something new has started.
August 21, 2003: 8:30 AM EDT
By Justin Lahart, CNN/Money Senior Writer
NEW YORK (CNN/Money) - "This time is different," is the most dangerous phrase in the market lexicon.
These four little words got investors into heaps of trouble as tech stocks exploded higher in the late 1990s on the notion that their performance was somehow divorced from the business cycle. They keep investors cursing on the sideline whenever the U.S. economy escapes from recession.
But the most dangerous place to utter "This time is different" for the last decade and more has been Japan, where busted rally after busted rally has littered the Tokyo Stock Exchange with broken portfolios.
And yet investors are betting once again that Japan will be able to lift itself out of the mire. The Nikkei has gained 36 percent since hitting 20-year lows back in October and is now at its best level in over a year. Only two of the index's big rallies over the past decade -- a 57 percent affair that started in 1995 and a 54 percent one that began in 1999 -- have been bigger.
What's got investors jumping into Japan now? Many are just along for the ride, betting that an improving global economy will give the Tokyo stock market an outsized (and temporary) boost.
More than any other major market, the skew in Tokyo is toward cyclical companies (like car companies and electronics manufacturers), which tend to see their fortunes ebb and flow with the economy. Lehman Brothers estimates that over 50 percent of Japan's stock market capitalization is in cyclical companies. In contrast, just about 20 percent of the U.S. and euro-area markets are in cyclical companies.
But there are investors who believe that Japan is more than a one-shot deal. Sure, the government is remarkably hidebound, they say, but there are some real signs of change. More importantly, the corporate environment has changed, and companies are actively cutting costs and focusing on their core competencies. There is also a growing recognition that they cannot compete with the rest of Asia, particularly China, on costs. This is leading many manufactures to shift operations across the Japan Sea.
It's still hard to see Japan's economy as anything other than a mess. But Matthews International senior analyst Jason Aitken points out that in 1982 it was hard to see the U.S. economy as anything other than a mess. Back then, the idea that the United States could somehow recognize that it could no longer compete with the likes of Japan on manufacturing, and make a shift toward a services economy, seemed farfetched. There were plenty of people at the time who really believed that there was no way things could be different for the United States.
They missed out on the beginning of the biggest bull market the country has ever seen.
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