Japan Distracts Investors With Olympic Five-Ring Circus

by Charles Sizemore | September 9, 2013 1:54 pm

“Tokyo 2020 Olympics could be shot in the arm for struggling Japan.”
– NBC News[1]

“The successful 2020 Olympic bid signals new hope for Japan.”
– Time Magazine[2]

So, that’s all it took. Twenty years of economic stagnation, and all Japan needed to get back on its feet was that the summer Olympics be hosted in its capital. And after two decades of a secular bear market, Japanese stocks are a buy again.

Such a shame no one thought of this sooner.

If you believe any of this, I recommend you close your brokerage account, withdraw the cash balance in a duffel bag, then douse it in gasoline and set it on fire. Because if you believe Japan is investable, you’re inevitably going to lose your money. The fiery duffel bag will help you skip a few steps and save some time.

The received wisdom is that the Olympic Games are good for a host’s economy, but the evidence here is sketchy at best.

London hosted the 2012 Summer Olympics, and by the U.K.’s own estimates[3], ticket sales boosted British GDP by a whopping 0.2% in the third quarter of 2012. That’s hardly worth mentioning.

Hotels and food and beverage services picked up a little during the quarter the Olympics were hosted. But the final analysis by the British government was that the overall impact was modest, and that consumption dollars spent on the Olympics might have simply “displaced other activity.” In other words, an Olympic ticket came at the expense of a movie ticket that might have otherwise been purchased.

The Olympics aren’t all that great for employment, either. Quoting the U.K. Office for National Statistics (emphasis mine):

“Employment agencies showed some strength in the quarter and it is possible that some of this strength was related to the Olympics. However, there was no direct evidence from survey respondents to support this.

And hosting the Olympics isn’t free. It cost the U.K. just less than 9 billion pounds[4] to host the games, which amounted to “£142 per head for every man, woman and child in the United Kingdom.”

Of course, London’s transportation and infrastructure were improved in preparation for the games, and the U.K. will continue to reap the benefits of those improvements for years to come. That has value, even if it is hard to quantify.

But this absolutely wouldn’t matter in Japan’s case.

Japan expects to spend about $6 billion building, among other things, 11 new sporting venues[5] and 10 temporary ones. But for one, Olympic expenses rarely come in under budget; Russia’s 2014 Sochi Olympics are on track to cost $50 billion — the most expensive in history, despite an original estimation of $12 billion when it bid in 2007[6] — and the 2012 London Olympics went over budget by nearly 300% to 400%, depending on the study. According to Oxford’s Said Business School, Olympics’ cost overrun is 179% on average[7].

And the last thing Japan needs is new infrastructure. At the risk of sounding alarmist, in another few decades there will be no Japanese left to use it. Japan’s population shrunk by 200,000 people last year, and Japan is the oldest country in the world. A quarter of the population is over the age of 65 … and that number creeps up every year.

Hosting the Olympics provides the proverbial bread and circuses for the population, but it does nothing to address the country’s long-term problems. With sovereign debts approaching 250% of GDP — and with fewer Japanese taxpayers to service that debt every year — Japan is heading toward a sovereign debt meltdown[8].

Not even Japan’s world-class multinationals see opportunity there today. As a case in point, Suntory Beverage & Food, one of Japan’s largest consumer staples companies, announced today that it would be buying the Lucozade and Ribena drink brands[9] from Britain’s GlaxoSmithKline (GSK[10]) for $2.1 billion as a means of diversifying outside of Japan.

Suntory has been aggressively expanding outside of Japan, where the company already generates just shy of a third of its revenues. Expect this to continue, as it is the company’s only outlet for growth.

So, with all of this said, are their pockets of opportunity based on the Olympics bid? Maybe. But I wouldn’t get too attached, as the companies best positioned to profit have already seen their share prices jump. Taisei Corp., which built the stadium for the 1964 Olympics, rocketed by 17% on hopes that it will be involved in the 2020 Summer Games.

The best course of action? Move on. Ignore the Olympic hype and seek your investment opportunities elsewhere.

Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management.  As of this writing, he did not hold a position in any of the aforementioned securities. Click here[11] to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.

Endnotes:
  1. NBC News: http://worldnews.nbcnews.com/_news/2013/09/08/20386180-tokyo-2020-olympics-could-be-shot-in-the-arm-for-struggling-japan?lite
  2. Time Magazine: http://world.time.com/2013/09/08/view-from-tokyo-the-successful-2020-olympic-bid-signals-new-hopes-for-japan/
  3. U.K.’s own estimates: http://www.ons.gov.uk/ons/dcp171778_284925.pdf
  4. It cost the U.K. just less than 9 billion pounds: http://uk.eurosport.yahoo.com/news/london-2012-final-cost-london-2012-games-revealed-135956051.html
  5. 11 new sporting venues: http://qz.com/122238/tokyo-2020-olympic-games-japan-debt/
  6. despite an original estimation of $12 billion when it bid in 2007: http://www.theatlanticcities.com/neighborhoods/2013/08/sochi-track-be-most-expensive-olympics-history/6614/
  7. Olympics’ cost overrun is 179% on average: http://www.bloomberg.com/news/2012-06-24/london-olympics-to-be-most-over-budget-games-since-atlanta-1996.html
  8. Japan is heading toward a sovereign debt meltdown: http://charlessizemore.com/still-waiting-for-japans-day-of-reckoning/
  9. buying the Lucozade and Ribena drink brands: http://online.wsj.com/article/SB10001424127887323595004579064361983391476.html
  10. GSK: http://studio-5.financialcontent.com/investplace/quote?Symbol=GSK
  11. Click here: https://order.investorplace.com/?sid=OA8158

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