TOKYO -- The slow pace of Japan's economic recovery has muted overall stock prices in Tokyo, but some incentive-based shares have grown volatile because of so-called locust investors -- individuals who rapidly descend en masse on stocks and flee them just as quickly.
The spikes in stocks targeted by such investors are called "locust towers," and they reflect the power that these market players possess as a group.
A typical example of a locust tower can be seen in the movement of the stock of Ohizumi Mfg., a maker of electronic parts and devices that is listed on the Tokyo Stock Exchange's Mothers market for startups. The surge was triggered by the company's Aug. 20 announcement on its website that its automotive temperature sensor will be adopted by major European automakers via German autoparts giant Robert Bosch. The company's stock went limit-up repeatedly, jumping nearly 700%.
A similar surge happened with the stock of Zuken Elmic, which is listed on the TSE's second section. After the Yokohama-based information technology company announced it will develop automotive Ethernet AVB (Audio Video Bridging) communication middleware in conjunction with Renesas Electronics, the company's stock price quickly shot up more than 200%.
Last week, shares in Money Partners Group, which handles foreign-exchange margin trading, surged overnight on the back of the yen's weakening against the dollar. When Money Partner Group's stock tumbled, investors shifted their money to its peer, Traders Holdings.
"Stocks of game makers, such as mixi, have stopped moving and individual investors, who are looking for promising investment destinations, are buying different incentive-based stocks daily," said Nobuyuki Fujimoto of SBI Securities. "I'm not so sure whether the surge in many of these stocks is firmly underpinned by earnings."
So who are building these locust towers?
A farmer in his 50s in Mie Prefecture who has been playing the markets for nearly a decade said he enjoys investing in stocks because he can get all the information he needs through the Internet. He said he checks the night before what direction certain issues are likely to move in the next day based on information on online bulletin boards and stock rankings.
He trades roughly 20 million yen ($186,700) a day through margin deals. If trading of a certain stock is sluggish, he sells it within minutes. When asked if he knows of the term locust investor, he smiled wryly and said, "I see locusts in my rice field every day, but the way investors flee stocks quickly may make them look like locusts."
Individual investors have started engaging in rotational buying and selling through margin trades since the TSE lifted restrictions on such activity in January 2013. The change has allowed individual investors to conduct such trades using the same margin collateral. That has resulted in far greater price movements in individual stocks. The number of issues designated by the TSE as being subject to "daily publication" -- trading alerts -- to prevent the market from overheating due to excessive margin trading has increased noticeably since January 2013.
A representative of Ohizumi Mfg. said he is confused about the unexpected surge in his company's stock. If the best way to improve the price-discovery function of the market is by allowing a diverse group of investors to participate, it is disappointing to see the market being lifted only by the growing number of locust investors.