By: Trang Ho from Investors Business Daily
Money Managers Bullish on Japan
Tue., Feb. 15, 2011 2:16 PM ET
Japanese equities, like those in other developed markets like the U.S. and Germany, are outperforming investments in emerging markets.
European investment powerhouse Amundi Asset Management says it’s time to invest in Japan.
“More than 60% of the country’s equities are currently trading below their book value, which makes the Japanese market one of the least expensive in the world,” the firm, with 650 billion euros ($878 billion) under management, said in a strategy report released Tuesday.
Amundi believes the yen will depreciate against the dollar this year, ending years of underperformance in the island nation’s market.
IShares MSCI Japan Index (EWJ) climbed to a 2 1/2-year high this week. It’s returned 4% year to date and 15% in the trailing 12 months. The iShares MSCI EAFE Index (EFA) of developed markets rose 5% and 15% over the same periods.
Some money managers and traders that we often speak to also recommend buying Japan.
Carl Delfeld, managing director of emerging-markets adviser Chartwell Partners in Denver wrote:
My contrarian pick, iShares MSCI Japan Index, is a market trading at about 25% of its peak in 1990. Japan has largely been a disappointment to investors trying to predict when it will come back to life. It is a distinctly contrarian play but hope springs eternal.
The key to a strong Japanese market next year is a weaker yen and a keener interest from the Japanese to invest in their own market. Another catalyst could be Japan’s low relative valuations and sharper focus on emerging markets. Interestingly, iShares MSCI Japan Small Cap Index(SCJ) is trading collectively at less than book value.
Scott Redler, chief strategic officer of T3 Trading Group, New York, wrote:
IShares MSCI Japan Index can yield a 20% or more return (in 2011). Right now it is trading at a price-to-earnings (PE) ratio of 20. If the value of the yen falls versus the dollar and the euro, the better off they are. Profits of the export driven economy will rise. Their trading with China is increasing and they are starting to get paid more and more in yen, which is a large benefit to the exporting country. They also have been ramping up trade deals with India. Their debt is somewhat isolated as it is primarily held by Japanese citizens similar to Italy, but more so.
Prime Minister Naoto Kan’s popularity has been in decline since the finance minister took over but that is traditional in Japan — a quickly falling popularity after being elected.
I happen to really like him and but if anyone can steer the country to defeat inflation he can.
If they can break the 20-year cycle and reclaim their manufacturing prowess, you could see a real move.
They practically invented such management techniques as TQM (Total Quality Management), 6 Sigma (pioneered by Motorola (MOT) as they get past this year, which was plagued by auto recalls.
But deflation, the yen and the investment climate are maintained as the biggest headwinds. (They’re very comfortable with cash on their balance sheets and not willing to borrow at ridiculously low rates for investment.) Financials are starting to act well after October’s sell off on capital requirements out of Basel but have been rising since the beginning of November.
Technically we have a long 15-year base that has consolidated long enough that could yield a nice break out to the upside now that some of the fundamental and macro problems have been sorted out.
*DISCLOSURE: Long EWJ
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