Slide halts in Tokyo

Press, 2 December 1987, Page 39

Slide halts in Tokyo

The market slide apparently set off by Mr Reagan’s comments may have spent itself by the close of trading in Tokyo yesterday. Share prices rebounded sharply in afternoon trading on the Tokyo Stock Exchange yesterday, bolstered by strong support from financial institutions and a steadier dollar. The 225-issue Nikkei Stock Average, which lost 365.45 points on Monday, climbed 146.11 points, closing at 22,832.89. The market’s key indicator had plunged 363.92 points earlier in the day, driving lower by record declines in foreign exchange markets overseas. Later in the day the United States dollar stabilised. Advances equalled declines in turnover of 400 M shares, against 270 M on Monday. Wall Street’s Monday loss initially disturbed investors, but then bargain-hunting interest grew, especially towards export-related shares. Communication, electrical, some manufacturing, precision instrument, textile and pulp/paper shares led the advance.

Brokers said the dollar's remaining above 132 yen and the continued recovery of Nippon Telegraph and Telephone (NTT) shares from morning lows helped boost market morale.

“NTT is being supported by institutional investors and individual investors,” said analyst Tadaaki Uehara of Wako Securities. They realise if NTT falls, the market goes down also.” Brokers had been concerned about NTT shares’ recent slip below its initial 2.55 M yen offering price. New York share prices dropped precipitously in heavy, nervous trading on Monday (early yesterday, New Zealand time), that reminded some experts of the painful period surrounding last month’s market collapse. The Dow Jones average of 30 industrials tumbled 76.76 points to 1833.72, a 4 per cent decline and the eighth biggest daily point drop. Declining stocks outpaced advances eight to one on the New York Exchange, volume totalled 268.91 million shares (the twelfth busiest day), compared with 86.36 M in the previous session. “It’s like the same stuff all over again,” said Mr Hugh Johnson, a senior vice-presi-dent for First Albany Corporation financial firm.

Traders attributed the market’s slump to fears of higher inflation after the dollar’s continued decline in foreign exchange, higher commodity prices, and weakness in overseas stock markets.

“It was a pretty bloody day in the markets,” said Mr Byron Wein, a portfolio strattegist with Morgan Stanley and Company. Mondays have been particularly bad for Wall Street in the last six weeks. On October 19, the market crashed 508 points. The next Monday, October 26, it lost 156.83 points. This Monday, the Dow Jones fell 60 points in the first 30 minutes of trading.

Economists have said the current economic scenario does not add up to higher inflation, especially as oil prices continue to fall. But as Mr Dennis Jarrett, a technical analyst at Kidder, Peabody and Company, the financial firm, explained: “When you have a negative psychology, everybody pulls the trigger at any sign of a downside.”

“What had been happening is that the market was stabilising prior to Friday, and some confidence was being restored ever so gradually,” said Mr Johnson. “Today was kind of demoralising.” The credit markets, meanwhile, benefited from the stock slump, indicating a flight to more secure investments, traders said. Interest ratings were lower as a result.

In London, shares were steady around the day’s sharply lower levels in the

late afternoon, showing no significant response to the opening sell-off on Wall Street, dealers said. By 3.14 p.m., the FTSE 100 index was down 4.7 c or 77.3 points, to 1574.3 but this compared with 1574.9 at 2 p.m. The index touched a low of 1570 shortly before 2 p.m.

Dealers said London remained calm after the Wall Street plunge as a sharp fall in respone to the weaker dollar had been anticipated in New York. Prices here moved sharply lower from the first trades on worries about inflation and higher interest rates arising from the lower United States currency. An analyst, Mr Tim Congdon, of Shearson Lehman, described the British falls as a response to Washington’s apparent resignation to further declines in the dollar. Economists in Britain now generally agree the Reagan Administration now wants to use the lower dollar to stimulate growth in 1988. Mr Congdon said the sanguine attitude to the dollar of the American Treasury Secretary, Mr James Baker, and the inflationary consequences of further falls were mainly upsetting the sharemarket.

Mr Congdon said he did not believe today was a re-run of "Black Monday” on October 19. “Shares are currently about where they ought to be if on the cheap side,” he said.