Darrel Whitten

Japanese Property: Fear Has Overcome Greed

Bill;
Mitsubishi Estate and Daibiru were mentioned because of Seeking Alpha's requirement to mention stocks that are traded in the US, which these two are in ADR (OTC) form. Personally, I like Sumitomo Realty (TSE Code: 8830) better because of its higher Beta to bull runs in real estate-related stocks. Mitsubishi Estate is the Cadillac (or Mercedes S550) of the Japanese real estate companies, being landlord of the some of the best commercial properties in Japan, such as the Marunouchi central business district around Tokyo station.

Will Crashing Chinese Stocks Mean a Yen Rally?

Dear John;

If you are a US dollar-based investor investing in a stock that trades in another currency (like the Yen), there are four possible scenarios;

1. The currency and the stock (in yen) appreciates.
2. The stock appreciations but the currency depreciates.
3. The currency appreciates but the stock depreciates.
4. Both depreciate.

Japanese stock prices of major exporters (Toyota, etc.) tend to depreciate when the yen is strong, because it has a directly negative impact on their operating profit, i.e., JPY10 appreciation in the yen against the dollar on an annual basis can mean tens of billions of yen in lost profit.

So while the US dollar-denominated ADR price goes up when the yen appreciates (because of the exchange rate), the stock price in yen tends to depreciate, i.e., scenario (2) as described above.

More Japanese Polarization: Only the Truly Global Will Prosper

Gen;

I would make a distinction between nationality of board members and "global mindset" as compared to the globally competitive nature of the business/products, i.e., is the company really globally competitive or not? I agree with Mitarai-san of Canon that "form over substantance" is not the solution to Japan's corporate governance issues, and for that matter, profitable investments in Japanese stocks.

Sure, Toyota has way too many board members by international "standards", yet they are one of the most respected (feared) automobile company in the world today. A relaively small company like Ushio Electric is also very respected for its niche products where they have global market shares in the 70%~80%. Japan's shipping companies operate in truly global markets and while not perhaps the most competitive firms out there, are nevertheless benefitting very nicely from global trends.

The point that I was trying to make is there is a big difference between firms who are able to leverage (benefit) from global trends as opposed to firms who are basically local clones of successful global business models, which in my mind includes may of the "new economy" Interntet companies listed on the Junior markets whose businesses are now struggling, but for which investors paid high premiums for when they were first listed.

Japan: Chasing Yield in a Low Interest Rate World

Dear Marty;

Your suggestion is a good one given that that our portfolio of "core" REIT stocks (i.e., those that were first listed) is showing the best YTD 2007 performance of any other Japanese equity group year-to-date (up 26%) and (up 73%) since the model portfolio was launched in November 2004.

The REITs first listed (some 14) are stronger because they were the earlier movers, i.e., they acquired commercial properties in central Tokyo locations (Tokyo's 23 wards) for very attractive prices, well before the "hot" money began arriving.

However, since Japan Investor is a subscription site, I'm afraid information on specific REITs is only available to subscribers.

Regards,
Darrel

Yen Carry Trade: How Much is Too Much?

Dear John;

According to the IMF's attempt to measure the yen carry trade, the bulk of this carry trade is not "speculation" but individual Japanese investors buying offshore investments denominated in high yielding currencies. In Asia, for example, a Japanese investor can earn 6.8% on demand deposits while also enjoying an appreciating Auzzie dollar against the yen. Japanese fund management companies are creating mutual funds with monthly payouts that have various bells and whistles to be able to make the monthly payouts, which is also contributing.

I found this attempt to get a balanced view of the carry trade a bit refreshing.
tmcgee.wordpress.com/2.../

Japan Investors Opposing Global Sentiment: Avoid Tech, Buy Material

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.

S. China Morning Post: Japanese Companies To Tap the IPO Market By 2009

Dear Dr. von Pfeil;

I would like to know more about your deeply-rooted skepticism concerning investing in Japan's stock market vis-a-vis the Economic Time™ and the conjecture therein that Japanese stocks are not market-(ergo investor) friendly. Granted, Japan has always been somewhat of an outlier in terms of fitting into global macro models. Yet foreign investors who have taken the time to get below top-down allocation decisions seem to be making money. If not, Japan would have been abandoned long ago as a destination for global portfolio investment flows.

Foreign investment flows continue to be a major driver of Japanese stock prices. Is this merely a function of simple top-down investment allocation decisions? Is Japan merely an afterthought/risk hedge against what is happening in global equity markets? We think not. There has to be something behind the massive portfolio investment inflows into Japan equities beyond mere excess savings/liquidity sloshing around in global markets.

For example, after the sell-off in mid-year 2006, why did European investors become the major net purchasers of Japanese equities after US investors took profits?, and in 2007, why have Asian investors become the major net buyers of Japanese equities? Might not this have something to do with the massive excess savings of Asian and GCC (Gulf Cooperative Gouncil) states' expressed wish to reduce their currently heavy overweighting in the US dollar?

Or could this be because the Japanese market as expressed by the US$ "EWJ" ETF has outperformed the S&P 500 since 2003, despite the Yen carry trade-induced structural weakness in the Yen?

The Subprime Solution: Containing Global Contagion

Dear Ken;

Remember Y2K and all of the "smart guys" telling us how this would bring down the civilized world? The Fed and other central banks reacted by providing massive amounts of liquidity to ensure the "doomsday" scenario would not come to pass...what a great stimulous for global stock markets!

The Japanese political scene makes for greate media coverage and speculaton among foreign investors, but has precious little to do with what goes on in the realy economy--and therefore only has a passing impact on the stock market. This is because politics in Japan is largely irrelavent to
what is actually going on in the real economy! For a reality check, all you have to do is track what Japanese politicians actually do versus what they say. At the end of the day, political action in Japan inevitably gravitates toward what is considered the best solution for Japanese business and the financial markets, i.e., a very investor -friendly compromise...

Relationship Investing Pays in Japan

Steve;

Our data shows Steel investments in 37 Japanese companies, and there is no shortage of potential financiers who would like to ride of Steel's coattails. In addition, considering that hedge funds investing in Japan using traditional (eg, long/short strategies) lost money in 2006, more than a few of such hedge funds are considering becoming "activist" investors, given the obvious success of such strategies so far.

Japanese Value Stocks: Excess Liquidity and Extreme Volatility

Dear Lance;

Yes, after the stock tanked from JPY2,870 to JPY2,310 (19.5%), and the ADR is down some 4% since (from your March 9 call), so your Nomura trade is now up only 6%. From where do you want to start measuring whether yours is longer than mine?

Nikko Cordial Bouncing Around; I'm Not Selling

Regardless of what foreign investors think, I hear that the TSE was outraged by initial pressure tactics from Nikko Cordial to have the stock removed from the supervisory post, and TSE chief Taizo Nishimuro was on TV in Japan last night indicating that the TSE is not yet ready to let Nikko off the hook.

Will the Yen Bears Be Surprised?

The point is not whether Japan is on the verge of a "consumer spending binge", but whether consumer is actually stronger (and potential GDP growth) is actually stronger than was indicated in the weak Q3 GDP number, and whether the apparent strength in Q4 GDP was real or a statistical fluke. In other words, Japan's sustainable GDP growth looks better than the weak Q3, but not as strong as indicated by the Q4 number (i.e., real GDP growth is more like 2.5%).

There is ample evidence that Japan's labor market is tight, and that this is more than a shift from retiring baby boomers with full benefits to "burger flipping" younger workers. Moreover, the government's household survey is notorious for distorting underlying consumption trends, while further distortion is being added by the wave of retiring baby boomers, i.e., the 60-ish part of the labor force.

Thirdly, a GDP surprise for Japan does not require a so-called "consumer spending binge". All is required for a "growth scare" is firmer consumption that currently overly-bearish assumptions assume, which is implied in the comments about domestic demand in a mature (i.e., ex-growth) economy. After all, if currency traders could believe that the end of quantitative easing and a modest tightening of short-term rates by the BOJ (i.e., the end of ZIRP) could destroy the current climate of global excess liquidity (and the fundamentals behind the yen carry trade) with the stroke of a pen, they are just as gullible about an ostensible re-appraisal of Japan's potential growth rate and the implications this may have on BOJ policy.