Japan Investors Opposing Global Sentiment: Avoid Tech, Buy Material

Surveys of global investors show that the US stock market continues to be the stock market the pros love to hate. Indeed, the disparity between bullish views about Europe and bearish views about the US was the widest ever recorded in the most recent Merrill Survey. Global investor favorites for the next 12 months are now Europe, Japan, Emerging Markets and the US, in that order.

By sector, global investors are still wont to overweight technology, but here we see a disconnect between a professed bullish stance on technology and the earnings weakness being seen in semiconductor stocks, and the bullish IMF world economic outlook versus global investor dislike (underweighting) of materials stocks. In the Japan context, we believe investors should position themselves opposite of what the recent global investor surveys indicate, i.e., underweight/avoid tech and overweight/buy materials.

As we already pointed out in our February 13 comments, the problems in semi land are because of what didn't happen when the memory hog Microsoft (MSFT) Vista operating system was introduced, i.e., the system has so far failed to generate the expected PC replacement demand and corresponding demand for semiconductors. As a result, semi prices are falling faster than expected, leading to operating losses/earnings declines in the global semi space, including Samsung Electronics and LG Electronics in South Korea, Japan's NEC Electronincs (NELTY.PK), and Motorola (MOT) and Advanced Micro Devices (AMD) in the US.

This is likely to lead to curtailed semiconductor capital expenditures which in turn will hurt earnings and stock prices of semiconductor production equipment companies, an area in which Japanese companies like Tokyo Electroni, Advantest (ATE) and Disco excel.

On the other hand, global supply-demand for basic materials/commodities remains strong because of continued expansion in BRICs demand. China's economy for example refuses to slow despite government efforts to engineer more manageable growth, while other developing nations are cruising along at 7%~8% growth per annum, with growing current account surpluses and declining national debt.

Comments

[William L. ...:]

This is a little incoherent. What does it mean, "buy material"? Also, the names of a couple of the companies are cut off or don't have tickers attached.

2007 Apr 23 09:27 AM

[Darrel Whitten:]

Dear William;

"Materials" means basic materials stocks. As in the S&P "Materials" SPDR (ticker XLB), basic materials includes such industries as chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products. Apologies for the mis-spelling of Tokyo Electron, which has no ADR (American Depository Receipt), and thus no ticker was given.

2007 Apr 24 08:06 AM

[zvi saar:]

i liked the idia and i think there is a lott off sense....

2007 Apr 24 04:04 PM