Japan's Aging Rally By Leslie P. Norton
Highlighted companies: Hitachi (HIT), Mitsubishi (OTCPK:MSBHY), Nintendo (OTCPK:NTDOY)
Summary: Veteran Japan strategist Jonathan Allum of KBC Financial Products (London) says we are not witnessing another false dawn for the Nikkei. Instead, "expectations and reality are much more correctly aligned." The Topix 1st section is currently valued about 10% below his year-end target of 1,700. Allum is bullish short-term: "I think we've seen the bottom in the markets for the current year and are trudging back up the slope." However, he thinks we've experienced the best part of the great Japanese rally and expects the expansion cycle to top out in '07. Allum still seems optimistic long-term, citing capex increases and potential gains in productivity. He currently recommends larger-cap value over smaller caps and is eyeing oversold domestic demand plays while avoiding the more defensive areas.
Quick comment: Good timing and breadth and depth of Q&A in Norton's interview of Allum, which could spark some foreign investor interest in Japan again. Expect volatility to continue over summer and remember the big political election in September. Allum's interview contrasts sharply with Dr. Enzio von Pfeil's, "Signs of an Impending Japanese Crash Abound." Allum's other stock picks include: Toshiba Plant Systems & Services (JP: 1983), Toshiba Machine (JP: 6104), Kadokawa (JP: 9477), and Token (JP: 1766).