4 REASONS WHY JAPAN COULD BE A GOOD 2010 CONTRARIAN BET
6 January 2010 by TPC
10 Comments
No market has suffered more during the Fed’s boom bust cycle than Japan. The timing of their own credit crisis in the early 90’s couldn’t have come at a worse time – just before the great innovative boom of the internet age. To make matters worse, they didn’t begin to grasp the complexity of their problems until the U.S. and the rest of the world was slipping into a great recession of their own (please see here for our opinion on the current outlook for the U.S. deflationary battle). And then there is the great recession of 2008. But after years of abysmal market returns Japan might be the contrarian of all contrarian bets. Here’s why:
- Japan is hands down the most hated market in the globe. The consensus in our 2010 investment guide was underweight Japan. If there is no one left to dislike Japan then there is a strong likelihood that Japan’s market will melt higher as the sellers have already positioned themselves accordingly.
- The Japanese market is cheap on a relative basis. It now sells at just 1.4 times book value compared to 2.2 times emerging markets and 3.2 times China.
- Contrary to popular opinion, the debt problems in Japan could continue to serve as a near-term positive catalyst. Any potential problems funding their deficit is likely to result in further quantitative easing which would be highly beneficial to stocks in the short-term.
- Perhaps most importantly, the Yen now looks overvalued compared to the dollar and the Euro. In Japan’s export driven economy this could continue to benefit the Japanese economy. The risk likely remains to the upside as we believe the Fed will be forced to act in H2 and could result in a much more robust dollar than many currently presume. Any downside in the Yen would be positive for stocks.
More on this topic
(What's this?)
The Japanese Economy: All The Reasons You Don’t Want To Invest In Japan Right Now
(Investment U, 12/18/09)
Guest Post: Krugman Says American Economy Will Not Recover for a Long Time, Johnson Says “Crisi...
(naked capitalism, 1/8/10)
Japan: Going for Broke
(Contrarian Profits, 12/30/09)
Japan: Past the Point of No Return By Vitaliy Katsenelson
(market folly, 2/25/10)
Another positive: Aren’t Japanese banks trading just a bit above cash value?
Not according to Ambrose pritchard….
Bill Bonner thinks the same
Byron Wein picks Japan as well.
So if multiple strategists list Japan as their market pick for 2010 how can you call it contrarian?
If 10 people make Japan a contrarian pick in a group of 20, its hard to call it contrarian.
If you think the US has problems, I give you Japan. In this environment though, I guess it’s a good double down. Frigging nuts.
Japan managed to survive 2 decades of close-to-zero growth only because the rest of the world was on an economic tear which supported Japanese exports. With global demand drying up Japan will hit the wall very very soon. This is case of cheap for a very good reason…
Here’s an interesting article on Japan.
To lose one decade may be misfortune…
Dec 30th 2009 | TOKYO
The Economist print edition
Twenty years on Japan is still paying its bubble-era bills
I forgot to put the link.
To lose one decade may be misfortune…
Dec 30th 2009 | TOKYO
The Economist print edition
Twenty years on Japan is still paying its bubble-era bills
http://www.economist.com/businessfinance/displayStory.cfm?story_id=15176489&source=most_commented
Japan
Freedom of choice Rank 19 among 19 OECD countries
http://www.kisc.meiji.ac.jp/cgi-isc/cgiwrap/~kenjisuz/country.cgi?LG=e&CO=15
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