Antidote to the doom and gloom.
The markets tend to over-react when there are natural disasters.. There is a loss of economic activity is followed by a recovery in later quarters as reconstruction takes place. The problem here is that steady drip of bad news about the nuclear reactors.
Only after we know what happens there, can we assess the damage.
Higher US (and global) interest rates are in the offing as Japanese govt and investors sell US treasuries to raise funds for reconstruction. Remember Japan is the second largest investor in US government paper. China is the largest.
If so, S’pore’s interest rates could go up. What with Mah Bow Tan building more HDB flats and plenty of private supply coming on-stream, we could be in for some interesting times. And all these before factoring-in a possibility of a US recession as interest rates rise,
If one is a value investor of the school that believes in buying stocks trading below book, then look East to Tokyo.
Prices are so depressed that, at the end of December, nearly two-thirds of the 1,700 companies listed on the Tokyo exchange’s main section had price-to-book ratios below 1. That means, in effect, if one of those companies was dismantled and sold off for its parts, it would fetch more than its market value.
“These stock prices are saying there’s no hope whatsoever for Japanese companies, and that’s simply not true,“ said Tony Roberts, who manages a $2 billion-dollar Japan fund for London-based Invesco Perpetual. “There are lots of great companies in Japan that add a lot of value,“ he said.
Been reading that quiet a few reputable strategists and fund mgrs are saying that Japan’s the place to be.They include Byron Wien of Blackstone Advisory Services and Edinburgh-based Martin Currie.
Two related reasons are the large sums of cash held in Japanese bank deposits and the changing attitudes of depositors towards equity investments. This cash could set the stage for a domestic stock rally. True these are old arguments, but they could finally happen this time. After all the Japanese have elected a non-LDP government. The LDP had been in power since the late 1950s except for a few months in the 1980s.
Another reason is managements’ new focus improving corporate governance and return on equity. The focus used to be on market share and everybody except shareholders.
Then there are the strong balance sheets of companies. Japan is also exporting more to China and the rest of Asia, and less to the US.
Finally there is issue of relative valuations. FT reports,”Michael Katz of Glenrock Global Capital Partners says he likes Japan on a relative basis. The market is priced for “every known calamity” and clearly is not a momentum play for those looking to make a quick buck.
‘For those seeking value, if not Japan, what?” he asks. “Look around the world today and you’d find countries that depend on government largesse to keep themselves going. Stock markets are in their own little world. ””
Err last bull point puts me off: when someone talks of relative values, I tend to rush to the toilet.
Good Easter break.
Thoughts of a Cynical Investor 