What Lunatics Are Investing in Japan?

'Bargain hunting' hasn’t worked for five years and counting

   

Japan’s government just lowered its economic outlook for the first time in 10 months. Risks, according to the Cabinet Office, include a “further slowing down of overseas economies and sharp fluctuations in the financial and capital markets.”

So what else is new?

Japan has been the developed world’s poster child for stagnation since long before the Great Recession. In aggregate, Japan’s economy grew at half the pace of U.S. GDP between 2001 and 2010 with roughly 0.7% annual growth on average vs. 1.6% for America. The eurozone also outpaced Japan in that decade-long period, with annual growth averaging about 1.1%.

Things have not improved since 2010 either. While the Dow Jones Industrial Average is up 25% since January 1, 2011, the Nikkei 500 Index in Tokyo is down more than 10%. The iShares MSCI Japan Index ETF (NYSE:EWJ) is also down almost 6% in the same period.

Also painful is the performance of Japanese mega-cap stocks individually in the same period. Among those in the red since January 2010 are Toyota (NYSE:TM), Honda (NYSE:HMC), Sumitomo Mitsui Financial Group (NYSE:SMFG), Canon Inc. (NYSE:CAJ) and Mitsubishi Financial (NYSE:MTU). Together this group has a market cap of $330 billion.

And while the S&P 500 is up about 3% in the last six months, all of these stocks are also in the red short-term — including an ugly 16% decline in Honda since March 1 and a 12% drop in Mitsubishi Financial.

It begs the question: What lunatics are bargain hunting in Japan right now?

Obviously there is something to be said for buying low and selling high, and if you wait for a recovery to ring true then you will be missing out on the first (and often biggest) leg of the run-up. Just weeks ago I made a plug for cyclical materials stocks because of this fact.

However, Japan’s long history of stagnation is not inspiring — especially when set amid the backdrop of uninspiring global economic news.

The bottom line is simple. All things considered, I’d avoid the land of the rising sun for now.

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.


Article printed from InvestorPlace Media, http://investorplace.com/2012/08/what-lunatics-are-investing-in-japan/.

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