A lot of big losers have surfaced since last month's stock market crash, but where are the winners?
One good place to look is Japan. Financial markets there suffered heavy losses, to be sure. But in losing less than their American counterparts, they have gained much.
The total market value of the Tokyo Stock Exchange has now declined about 15% from its peak. New York's swoon was almost twice that. As a result, Tokyo has significantly lengthened its lead over New York in the percentage of global equity it represents, accelerating its drive to overtake New York as the world's financial capital. Flashes of that future occurred several times in recent weeks as Wall Street went to sleep at night hoping that Tokyo's morning would lead the world market out of darkness.
In the short run, the fact that Tokyo-listed companies held onto more of their value than their American competitors gives them an important edge in pursuing global business strategy. While American companies are now rushing to retreat from expansion plans, Japanese companies are taking advantage of stock market-shrunk prices to buy into the U.S. domestic economy more aggressively.
A quick scan of current business news underscores this trend: CBS, which had earlier leaned toward spinning off its record group to primarily U.S. buyers, is once again pursuing a $2-billion acquisition offer from Sony. Allegis, in a deal financed by the Industrial Bank of Japan, has come to terms with an investor group including Japan's Aoki Corp. to buy its 50 Westin Hotels. Nikko Securities, one of Japan's "Big Four" houses, has just committed $100 million to a New York-based fund pursuing mergers and acquisitions and leveraged buyout activity in the United States.
Most Silicon Valley firms hoping to launch initial public stock offerings now expect the window of opportunity to close for a while as the market sorts itself out. Where will they get the capital to continue growing? Japanese companies, eager to get in on the ground floor of American high-technology, will be willing backers.
The shakeout within the securities industry itself, which has already yielded a blizzard of pink slips at Wall Street houses, will help Japanese financial firms gain a larger market share in New York. Just as Salomon Brothers withdrew entirely from the municipal bond business and Kidder Peabody announced wholesale layoffs in its municipal staff, the New York subsidiary of Tokyo-based Nomura--the world's largest brokerage house--disclosed a major new foray into American public finance.
As U.S. investment firms try to cut their losses, they will undoubtedly take a hard look at the shocking cost of doing business in London and Tokyo where most have recently expanded. The pattern of American companies curbing new investment during cyclic shakeouts in auto, steel and semiconductors has already been well-established, as has the Japanese proclivity for continuing to invest heavily during downturns. A reprise of this scenario is in the works for the securities business. Driven by short-term profits, American financial service companies are likely to pull back from the much-touted global marketplace they have pioneered, even as their Japanese rivals continue to expand.
American politicians and business leaders are now likely to get less of a hearing than ever for arguments about why Japan should deregulate its markets faster. Japanese officials can argue that the volatility of Black Monday--exacerbated by innovations of American deregulation like program trading and portfolio insurance--is exactly what Tokyo is trying to avoid. Indeed, the relative calm exhibited by the Tokyo Stock Exchange, where the biggest investors appeared comfortable simply waiting out the storm, spoke volumes in support of Japan's go-slow approach to decontrol of the market.
A more severe crash certainly can't be ruled out in Tokyo's future. Yet for the moment, the Japanese stock market--which most American professional investors consider dangerously pricey--has proven itself more soundly valued than the American market, where share prices were and are more closely pegged to corporate earnings.
Black Monday's hindsight experts have explained on innumerable TV talk shows that stock prices function as a kind of referendum on investor confidence in the underlying economy. Wall Street took its vote on Black Monday and decided that American companies would be worth much less in the future if the U.S. economy continued on its current course.
In Japan, meanwhile, investors remained more optimistic about the long-term value represented by their companies and didn't rush as fast to sell off their holdings--even when provided with the invitation of a worldwide panic.
It's been said that the world after the Crash of '87 is forever changed. One of the most profound of those changes is that it has become a little less American and a little more Japanese.