Home—Blog—A cheap back-door play on China
Feb 24, 2010, 04:19
Posted byMerryn Somerset Webb
Comments (11)
We've written a good bit recently on how we aren't much interested in buying into Chinese stocks at current levels. We're not convinced by the 10%-a-year-for-ever growth story. And even if we were, we wouldn't be prepared to pay the overly high prices being asked in today's equity markets.
But what if we were convinced - as so many are - by the long-term growth story? What would we buy then? Regular readers will not be remotely surprised to see that the answer is Japan.
A note from Jonathan Allum at KBC explains why: Japan, says Allum, is now very clearly "decoupling from the US and Europe and hitching itself to the Asian express."
Look at the recently-released January trade numbers and you see that imports were up 8.2% month-on-month, and exports up 8.6%, putting the seasonally-adjusted trade surplus at a two-year high.
Looking to the regional breakdown of this shows that exports to Asia are up 68% year-on-year and exports to China up nearly 80%. Overall, more than 55% of Japan's exports go to Asia. A mere 16% of them go to the economic train wreck that is North America.
There are two important points here. The first, as Allum says, is that exports are clearly correlated to industrial production, so perhaps the very low consensus forecasts for that in Japan could do with an upgrade.
And the second? That if you want to invest in China but you don't want to pay a premium for doing so, why not invest in one of the best and cheapest China plays there is - Japan?
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(25 February 2010, 02:37PM) Complain about this comment
I reckon that Merryn Somerset Webb and possibly all Moneyweek journalists are heavily invested in Japan. I have never before seen such a concerted barrage of manically favourable comment (for up to two years now) extolling the virtues of investing in Japan over other regions. Here are some interesting performance comparisons: Over 2 years to date:NASDAQ minus 2% FTSE 100 minus 11% HANG SENG minus 12% S&P500 minus 20% NIKKEI225 minus 28%Over last 6 months: NASDAQ +11%, FTSE 100 +8% HANG SENG 0%, S&P500 +7% and wait for it..............NIKKEI225 minus 3%!How about some good old fashoned impartial journalism?
(25 February 2010, 03:07PM) Complain about this comment
Every dog has its day and Japan, today, represents value. in the end value will out. Ask John Templeton.
(25 February 2010, 04:26PM) Complain about this comment
I have heard many times in the past that Japan is about to turn round and that is the market to be in, but needless to say I had no winners. Part of the reason for staying away from Japan is that the Goverment itself can go into the market and buy/sell shares as and when it sees fit. I think I shall pass this decade as well.
(25 February 2010, 05:07PM) Complain about this comment
Japan again. Why? Do Japanese companies give a fig about shareholders? Do they pay dividends? They've been cheap for over a decade, what is the driver to make them more expensive - because if you can't answer the last question you are essentially saying 'Invest in these cheap stocks, they pay no dividends, and I don't know for how long they'll stay cheap'. 35 years, of holding , cheap stocks with no divis - that would involve a retirement eating beans out of a can and living in a tent.
(25 February 2010, 09:21PM) Complain about this comment
On what basis is Japan cheap? Certainly NOT PE ratio. On that measure, it looks quite expensive.PBV migh look better, but do you really trust the book value?
(25 February 2010, 09:53PM) Complain about this comment
Three years ago, every Financial adviser in the country was telling everyone to get into BRIC stars - down 16%.They also said:avoid... Neptune China - up 69%.avoid...Latin Anerica - up 71%.avoid...Neptune Russia & Greater Russia - up 58%.Buy what advisers say avoid and you will be quids in as I am.
(26 February 2010, 03:37PM) Complain about this comment
Jeff asks on what basis Japan is cheap. I would ask on what basis is China expensive? The idea that China is expensive has become consensual among western pundits. I wonder where everyone is getting their data. Indeed, after a decent correction, parts of the market look cheap. Take the bank H-shares, some of which now offer single-digit forward P/Es, with ROEs around 20% and dividend yields above 4%.
(01 March 2010, 09:45AM) Complain about this comment
I've been invested in Japan via the ishares etf since August 2004 and I'm showing gains of 20%, not brilliant but not a disaster in the current climate, the strength of the Yen's the reason, it hasn't been the nightmare trade everyone's been making it out to be
(01 March 2010, 11:01AM) Complain about this comment
It's a good point and one made again today by Stephen Harker of GLG. He says “There is a view that Japan always underperforms other markets. But in fact, if investors had adopted a buy and hold strategy in Japan from 1999 they would have done as well as they would have from the FTSE All Share. Japan remains a high-quality economy – it is still the rich man of Asia - but is trading on very low valuations. For us, the question isn’t: why invest in Japan? It is: why not invest in Japan?”
(04 March 2010, 11:51AM) Complain about this comment
With the yen so high even with further decline of the pound you might lose 30 percent on currency
(04 March 2010, 01:18PM) Complain about this comment
Looking at some ETFs: <2% Japan distribution yield 4% (approx) for Singapore.
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