If you think the US markets are bad, see Japan

'I hope the slings and arrows of market misfortune don't deter today's investors'
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The Independent Online

Please excuse me, but I am feeling a bit battered and bruised. You can hardly be surprised, given the slings and arrows that market misfortunes have hurled against investors. Last weekend was the first anniversary of the peak of the Nasdaq index. Today the 'T' word is mentioned in hushed tones, if at all.

Please excuse me, but I am feeling a bit battered and bruised. You can hardly be surprised, given the slings and arrows that market misfortunes have hurled against investors. Last weekend was the first anniversary of the peak of the Nasdaq index. Today the 'T' word is mentioned in hushed tones, if at all.

Current market problems are not just about technology where the bubble had burst. Technology remains a fast-growth industry. But recent profit warnings and layoffs have demonstrated that this industry is not immune to economic downturns, and the extent of the slowdown in the US is a main concern.

Japan, the other of the world's two largest economies, is also exercising investors' minds. We have a fair idea of the problems that face America and we can understand how these problems might be solved. In Japan they have yet to find a cure for their economic woes.

In the late Eighties, Japan's economy, and the market, seemed unstoppable. The Nikkei Dow index approached 40,000, a far cry from today's 12,000. But it all went wrong, not just in market values, but in the way Japanese authorities dealt with the problem.

Their Government's failures lie at the root of the lack of confidence in the Japanese market. In 13 years there have been 10 prime ministers. The reality is that no one has succeeded in pulling together a country that for years has operated from a rule book that bears no relationship to the way in which the rest of the world operates. That may not have mattered when Japan was successful. Today the international investing community is prepared to shun the country until they get their house in order.

Imagine the plight of the average member of the Japanese middle class. Little more than a decade ago, they could claim to have been enormously successful as a country, with per capita wealth second only to the US. And they achieved this in a society where jobs were for life and the supremacy of the Japanese business model appeared unassailable.

Then it all changed. Not only did investment returns become excruciatingly poor (Japan has had a nil interest rate policy until comparatively recently and may yet have to return to these drastic measures) but job security is threatened as the internationalisation of markets changes the way companies operate.

So you have a population who believe they need to save, but cannot find a way of tucking their money away profitably. Their stockmarket delivers losses, bonds and deposit accounts return next to nothing, and investing overseas is often upset by the currency.

Japanese shares are at their lowest level for 16 years, with the index standing at a mere 30 per cent of the value at its peak. That should be a warning to equity investors, but I am broadly optimistic. I hope it doesn't deter them. It doesn't deter me, but I remember 1974. Compared with then, today's markets are all tranquillity and confidence.

Brian Tora is chairman of the Gerrard Asset Allocation Committee

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