Steven Towns

Outlook for Japanese Stocks: A Rising Sun

Not quite feeling your optimism, and I still think the broader and deeper negatives far outweigh any incremental positives such as 7 Eleven opening up in Indonesia. And you should really take note that your figures for the DoCoMo - Oakmark deal and the size of Topix-1 are way off the mark: the former was a deal for Y31B or about $310M, not Y31T/$31B! The Topix-1 is definitely not $170B! At Y170T, it's more like $1.7T!

Japanese Equities: Land of the Relatively Rising Sun

Don, good article, and no doubt that EWJ has size and liquidity. Ironically, as I published recently (available on SA by searching ticker EWJ or my website at steventowns.com for those interested), its size and liquidity are exactly what did it in, or more precisely, what did in the Japanese equity market. The massive deleveraging last autumn handily took the N225 to a 26-year low. And relative yen strength has basically been the coup de grace for Japanese equities. I am not too excited about investment funds that are in the red but outperforming relatively. And in this case, any significant recovery for EWJ would necessitate a weaker yen, which would impact the fund's returns. I would be more interested in cherry picking some of EWJ holdings for accumulation and dividend reinvesting.

Japanese Exporters Look Poised to Profit from Weak Yen

Hi John,

Thanks for your comment and question. Toyota's ordinary shares (JP: 7203) are down about 4% ytd, compared to approx. -8% for its ADRs. The difference equals almost exactly the 4% weakening of the yen against the dollar ytd.

So why is Toyota down in its home market despite sustained growth and even surpassing GM by some measures? This is quite simply, in no particular order, due to (1) its run-up, almost doubling in the past two-years, (2) channeling of investment funds to overseas investments offering higher yields, (3) propensity to take profits quickly and frequently, (4) concern about the U.S. real estate market (inc. sub-prime) and slowing of overall U.S. economy, (5) higher gasoline prices hurting sales of higher margin autos, or at least boosting sales of lower margin autos in U.S.; weak domestic market w/ real growth only in the mini/sub-compact car (low margin) and luxury segments (high-margin, low volume), (6) uncertainty of FOMC policy, a rate hike would increase consumers' borrowing costs, (7) tough competition in BRIC economies, where Toyota has been somewhat of a late entrant, (8) high/rising commodity and materials costs mean imports and component costs are higher, possibly exacerbated by the weak yen, ....

There's a lot weighing the stock down, but it's not exactly tanking by any means. Obviously ADR holders are suffering more due to the negative forex impact.

Toyota Dominates Japan’s Domestic Auto Market -- Market Share Ranking (TM, NSANY, HMC, DCX)

Thanks for your comment. The global push by Toyota is amazing. Apparently Toyota now has its eyes set on India, also with a 2010 target date; in this case for achieving mass production of so-called "affordable" autos. It's getting easier to see how the BRIC economies will be key to future growth and profitability for auto manufacturers.

I wonder how long Suzuki will be able to hold onto its leading market share in India. In fact, I believe a major Japanese auto will take an equity stake in Suzuki in the near-term. It only makes sense given the trend towards smaller, more fuel efficient cars. I am not sure "hybrid" is as good of a solution as "compact" is. And that is exactly what Suzuki's competitive advantage is.

Greenspan Comments on Japan's Economy (EWJ, ITF, VPL)

Thanks for your analysis Enzio -- I appreciate your insightful comments. I had never thought of Japan in terms of it "exporting its imports" but you are right in that in order to export Japan must import raw materials first. Excellent point that if the yen appreciates Japan's import costs fall but at the same time its exports become less price competitive. Most readers should recognize the latter but of equal importance for Japan is the rate at which the Chinese RMB appreciates.

I won't argue against your main point that "many of us over-emphasize the role of FOREX rates and economic growth." However, for individual companies and especially for large scale exporters such as the companies I referenced that derive a large majority of their sales and profits overseas, FOREX is in fact a huge issue.

Tokyo Stock Exchange Suffers 3rd Worst Day This Year, ADRs to Watch (SANYY, TMIC) & Many Decliners

More details on the Mizuho error here by Bloomberg. Compliance concerns to come after the latest problem with the TSE?