Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investing in Japan? – Beware of the Valuation Trap

Stock-Markets / Japanese Stock Market Nov 30, 2007 - 05:08 AM GMT

By: David_Urban

Stock-Markets Best Financial Markets Analysis ArticleFor the past year, investors have been caught in a quandary with respect to Japanese stocks. Japan has seriously lagged Hong Kong and Chinese equities with investors being forced to make hard decisions about whether to chase performance or invest for the long term. While investors are touting Japan as cheap based on a number of indicators such as PE ratios one has to take into account significant factors which are shaping the current investment climate.


Despite many research reports to the contrary, Japan has yet to emerge from deflation as rising prices have been caused by commodity price inflation rather than an actual increase in consumer demand. As Japan imports almost all of its commodities it has been impacted more so than any other country, with the possible exception of the United States , by India and China joining the global economy. Japan , like the United States , has had to push to obtain the necessary raw materials in order to drive manufacturing. Unlike the United States , which as a military power, is superior to any nation in the world and can use that power for influence, Japan has no real power on the international stage. Japan chooses to play a more humble role which has hurt the country during this economic cycle as China and India have been more aggressive in signing international agreements and obtaining raw material supplies.

During this cycle, rising commodity prices flowed through the production chain down to the consumer level without a corresponding increase in salaries. The Japanese worker absorbed the commodity price increases through low wage growth. Retail sales have grown at a slower pace than expected during this cycle due to the slow growth in personal income.

On the political front, the longer the LDP remains in power the more likely the government and Bank of Japan slip into past non reformist policies. It does appear that change may be on the horizon as the DPJ has been gaining steam with the electorate, as evidenced by their ability to win control of the upper house last July. Depending on how strong they feel in their position with the electorate, we may see a challenge to the LDP in the spring with the appointment of a new head at the Bank of Japan failing and possibly leading to early elections.

Former Prime Minister Junichiro Koizumi was an aberration in the Japanese government in that he cut public works projects, privatized the post office, and carried out selective reforms while continuing to respect his political base through controversial appearances at war memorials. Shinzo Abe was unable to muster much support following Koizumi and his tenure was marked by a return to the traditional, glacial style of Japanese politics. That looks to continue as the Japanese government begins to claw back at reforms and reinstitutes a more traditional Japanese style of business. Most affected are the banking and real estate industries.

Should the Bank of Japan decide to raise interest rates they would not choke off economic growth; affecting only the carry trade. If the carry trade were to unwind in its entirety the result would be a massive disruption in the global financial system as risk and speculation would disappear from capital markets. However, the return to a more traditional Japanese government means that interest rates will continue to remain low for some time.

Businesses have started to adapt to the changing environment by outsourcing entry level manufacturing to other Asian countries in a manner similar to how Boeing and Airbus manufacture airplanes. The components are manufactured globally and sent to their respective home factories for final assembly and export to the world. In this manner, they can lower costs while continuing to maintain an export advantage.

Economic growth will continue as Japan outsources basic and entry-level manufacturing to Thailand while maintaining final assembly and export from Japan . Commodity inflation would be exported offshore with savings being made up for in lower labor costs. In Japan 's economic numbers, import numbers will rise reflecting the entry level manufacturing imports with additional value being added in the final steps of the manufacturing process. The export value of the product then rises contributing to a larger trade surplus.

Finally, the fear of China replacing Japan as the manufacturer to the world has caused the Japanese to devalue the yen much like the dollar has collapsed versus the world's currencies. The only reason this has not been mentioned more by the press is that the world is more concerned with the glacial appreciation of the Chinese yuan, but there are important reasons behind the slow appreciation, most of which relate to social stability.

Fund managers looking at Japan may claim that the market is cheap but cheap markets do not always mean value. As long as Japan continues to revert back to a more traditional style of government and outsources entry level manufacturing while holding down wage growth deflation is likely to continue. Mangers looking at Japan should seriously consider the possibility that the economy remain mired in a deflationary spiral while looking to avoid a possible value trap.

By David Urban

http://blog.myspace.com/global112

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This blog and the author is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.

David Urban Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in