Email of the day 3
Comment of the Day

April 23 2014

Commentary by David Fuller

Email of the day 3

On Japan:

“Hi David, Eoin; By reading daily the comment of the day I know you are positive in the medium term to Japan. Below please find the GaveKal comment for Japan today. I will appreciate your comments. Best,”

David Fuller's view

Here is the GaveKal comment supplied.

Thanks for your email and the copy supplied.  Investors are currently waiting to see the impact of Japan’s sales tax, which the government introduced for reasons of fiscal responsibility.  They also remain wary because Japan’s stock market was a serial underperformer during the deflationary cycle following the 1990 stock market peak (monthly & weekly)

So there are medium-term uncertainties, not least after the Topix Index’s explosive rise commencing in November 2012, shortly after new Prime Minister Shinzo Abe began to implement his programme for economic recovery, and the initial spike high on May 2013.  Moves of that magnitude by a previously unloved market are usually followed by lengthy consolidations as we have been seeing.  However, this brief GaveKal comparison of book values provides justification for favouring Japan as a long-term recovery candidate:

“Topix [is] now trading at just 1.1 times book value according to Bloomberg.  In contrast the S&P 500 is at 2.6x, while the Stoxx Europe 600 is at 1.9x.”

In other words, Japan, a developed economy, still has one of the cheapest stock markets in the world.  Remember the words of value investor Benjamin Graham, quoted in this essay by Warren Buffett: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”

This Bloomberg article: Abe Revives Dying Shipyards as JBIC Loans Jump 30%, provides insights on Japan’s recovering export sectors.


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