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How many see Japan as a "free pass" for investor's this year?

beebee
edited January 2014 in Fund Discussions
On a recent interview linked by Ted, here, the strategy of of being "long Japanese equities and short the yen" was strongly endorsed.

How much of your attention and portfolio have shifted in this direction?

Here's a Bloomberg article on Abe's attempt at land-price reflation:
abe-eyes-land-price-reflation-in-zones-to-spur-construction

Comments

  • edited January 2014
    To me the Japan trade is really being a tourist (and the second things go wrong, all the tourists will flee) and trying a trade rather than investing. Might Japan stocks continue higher? Sure, but I do not see fundamental improvements in the Japanese economy, unfortunately. Also, how much do they need to import in terms of energy and other needs? A lot. Maybe cheapening the yen works well for a while, but do they run into problems eventually - I think they do.

    But, you know, we live in a world where people act like easy monetary policy is a free lunch with no hangover so, party on. lol.

    I had a little bit of leveraged investment in Japan last year and bought a little bit of a currency hedged japan ETF the other day when I was looking for something to do with a tiny bit of money left over from something else, but I hate this kind of "trade." I like investing primarily in things I really like the fundamental, long-term case for and unfortunately, I just don't see it for Japan. If I make a few bucks with this ETF trade, I'll sell it and move on.


    The only Japanese company I find interesting is Fast Retailing (FRCOY), whose Uniqlo clothing company is sort of like IKEA crossed with Gap and I think may be very competitive. I don't own it, unfortunately, but it's done really well and I think could continue to do well as it expands globally.

  • edited January 2014
    Morn'in scott,

    You noted: "To me the Japan trade is really being a tourist (and the second things go wrong, all the tourists will flee) and trying a trade rather than investing. Might Japan stocks continue higher? Sure, but I do not see fundamental improvements in the Japanese economy, unfortunately. Also, how much do they need to import in terms of energy and other needs? A lot. Maybe cheapening the yen works well for a while, but do they run into problems eventually - I think they do."

    >>>I don't believe there is much of "fundamental" going around these days in most markets. The central banks and currency exchange rates are driving monies globally, at least for the big players in the markets, IMHO.

    It is my understanding that Japan and its business practices are more entrenched than many other developed countries. 2011 Olympus scandal

    There are continued problems with their labor practices between the old and the young. A very closed society; at least in the aspect of immigration.

    On the other hand, I respect the apparent honor system of the country; i.e., several years ago the CEO of Japan Airlines reduced his salary to $90k/year after JAL continued to have dismal financial results.

    More recent (Dec. 2013), the entire (100 or so) PGA staff resigned, amid a mafia (Yakuza) scandal. I happened to witness a large protest while in Tokyo in 1969; which was reported to me as being backed/supported by Yakuza.

    I noted last year here (didn't look for the post) about we I thought was a bizarre way of economic process in Japan.

    1. Kill the value of the Yen.....inflating import prices on all products.
    2. A new sales tax to take place in April, 2014

    Don't know, but seems to be a funny way to run a country. A bunch of smoke and mirrors as far as I can see. The touchy, feel good stuff so popular these days; go'in around everywhere.

    Maybe tis all a wink and a nod for the way business is done in Japan; and I surely don't have the inside on this society, with the exception of it being a most complex society very different from many aspects of U.S. society.

    Investing in Japan may be as favorable as any other area globally at this time, in spite of the large equity run from Sept. of 2012.

    Hey, take care........our house has to go stimulate the housing related sector.

    Catch

  • Reply to @scott: According to the Bloomberg Poll that I linked here are the top four places for global investing in 2014.
    Regards,
    Ted
    U.S.
    U.K.
    E.U.
    Japan

    http://www.bloomberg.com/infographics/2014-01-21/global-investor-poll.html#markets

  • edited January 2014
    Reply to @catch22: Yeah, I agree with a lot of what you noted. I do think there are interesting fundamental stories that people can look at in a lot of markets.

    I mean, one that I'm looking at this morning and may add this week is Monmouth Real Estate (MNR), a nearly 50-year old REIT that is not that far off a 52-week low and yields about 6.65%. It is Fedex's largest landlord (and is by far the REITs largest tenant.) With an a continued increase in online orders, more shipping for Fedex. Not something to make a major bet on or anything, but showing that there are interesting options that are not at 52 wk highs, but closer to 52 wk lows.

  • Hi Bee, you know there is no free pass in investing. I like the poll data that Ted showed. Yes, Japan may be one of the top picks this year, but so might Europe+U.K. I would rather let a good proven manager slant his or her (international) portfolio. If you look at a fund like OAKIX, you get the best of both areas, Japan 14% and a lot of Europe, 72%. I'll take Herro's investing opinion before I'm moved by an article.
  • beebee
    edited January 2014
    Reply to @MikeM: I think OAKIX is a great way to have a little sake with your European dinner. Herro is an active manager which has worked positively for the fund's performance.

    I also like MAPIX exposure not only to Japan (was 10%...now 24%), but it's balanced Asian menu that manages the risk/reward spectrum very well.
  • MAPIX. Low risk, as rated by Morningstar, among category peers, but just "average" returns. Was it always so? Of course, the question is rhetorical.
  • Reply to @Crash: Average compared to what?

    "Diversified Asia Funds" Chart
  • beebee
    edited January 2014
    Reply to @mrdarcey: and here is MAPIX against Asian Indices since the 09 crash:
    image
  • Also, I didn't even think about this, but any time when I see something that says "free pass", "30% upside!" or something along those lines, I tend to be rather concerned about that asset class.
  • edited January 2014
    Reply to @scott: Especially when that asset class was up 41% (DXJ, hedged) and 26% (EWJ, unhedged) in 2013 ...
  • Reply to @AndyJ: Yeah, and on what fundamental improvement? Oddly, that reminded me the other Japanese play I like is Singapore-listed Parkway Life REIT, which is a healthcare REIT that is mostly Japan-focused. Figure that given the demographics of Japan, not a bad idea.
  • Reply to @mrdarcey: Sorry, that link is not working for me. I was only going by the rating from Morningstar. They are not infallible. But their rating of MAPIX has been reduced from the top-notch, where it used to be... And I note bee's chart, below. OK.
  • edited January 2014
    Reply to @Crash: Apologies. No idea why that didn't work. This is MAPIX since inception on 10/31/06 compared with some other Diversified Asia funds.

    image

    Blue is MAPIX: $20419.41
    Orange is MPACX: $16876.69
    Green is MAPCX: $13738.97
    Yellow is USPAX: $13173.60
    Red is FPBFX: $16113.63
    Other blue is TGRBX: $12139.63
    Light blue is VPACX: $11611.55

    MAPIX has crushed it with far less volatility than most any competitor. A little down lately, but possibly due to interest rate exposure? I also wonder if M*'s rating includes Asia ex Japan and Asia small cap funds?
  • Reply to @MikeM: The Harris Associates have had the right calls on Europe and Japan several years ago. At present, they have most EM exposure through Japan instead directly. I think Europe and Japan will likely to do well in the near term.
  • Reply to @Sven: How do they get EM exposure through Japan?
  • beebee
    edited January 2014
    Reply to @cman: Possibly in the same way US companies relocate their production to EM areas of the world...Ford most advanced assemble plant in Brazil for example. Check out the plant:

    Camaraci

    Japanese companies (Toyota, Sony, Mitsubushi, etc.) manages the quality controls and brand. They then efficiently utilize EM countries to produce the products (energy, materials, labor, & transport). This lowers costs for the Japanese company (shareholder's hopefully are also rewarded).

    As an aside, this mulinational corporation also helps to increase GDP in the EM country and strengthens their currency. China has tried to control its currency by pegging it to the US dollar. We will see what "Abenomics" does to the Japanese Yen. These mutlinational arrangements help keep inflation in the developing country at bay and I believe this is one way the US has actually exported some of our inflation to China and other EM countries. China can then attempt to slow its inflation by strategically holding US Treasuries, gold reserves, and other non-inflating assets instead of returning it entirely to wages. China has used these reserves as colateral to fund local infrastruture projects. This creates an internal mechanism that works its way into the EM economy with hopefully positive results...residential housing, transportation systems, schools, etc.

    Complicated times in which we live.
  • Reply to @bee: That example makes no sense to me in this context. A multinational exploiting cheap labor in EMs is more like a short position in EM than long. If the EM economy improves, labor costs go up and the multinational margins go down.It is better for the multinational if economy remains in recession and with low living standards so they can continue to benefit from cheap labor.

    One might instead use the consumer angle, multinationals that sell in EMs which do better as EM economy improves, but there are very few companies that are so exposed to EM that they are proxies for directly investing in EM. With that logic, one should just invest in US alone rather than invest anywhere else.

    So, I don't get that original statement.

    It is only as complicated as you make it.
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