by Dan Burrows | June 25, 2014 7:30 am
Japanese stocks have done a sumo-wrestler belly-flop so far this year — and that means it may be time to buy.
Make no mistake, Japanese stocks have been a disaster in 2014, with local benchmarks and U.S.-focused exchange-traded funds offering nothing but losses and dashed hopes.
The Nikkei 225 is off 6% so far this year, climbing back from a year-to-date dump of as much as 14% just a month ago. The most popular Japanese stocks ETF — the iShares MSCI Japan (EWJ) — is just short of breakeven now, having been off as much as 11% for the year-to-date back in April.
Indeed, Japanese stocks have fared so poorly this year, their performance is on par with equities in crisis-plagued Russia, which has gone out of its way to scare off capital.
That Japanese stocks should be such dogs after so many rounds of massive monetary easing and historic reforms makes the easy call a “sell.” Certainly, there’s no shortage of InvestorPlace writers making cogent cases slamming the land of the rising sun as an investment opportunity.
Our own Charles Sizemore notes that Japanese prime minister Shinzo Abe’s much-anticipated “third arrow” of reform falls well short of its target. After all, Japan can tinker at the edges all it wants, but the real problem is that the country’s “aging and shrinking demographics all but guarantee that Japan will eventually slide into oblivion.”
At the same time, InvestorPlace’s Anthony Mirhaydari notes that the Japanese policy of destroying the yen has hardly led to economic deliverance for Japan. Indeed, it’s only made some seemingly intractable problems that much worse.
And yet amid falling share prices and rising voices against Japanese stocks, Russ Koesterich, global chief investment strategist for BlackRock (BLK), remains bullish.
Here’s how the strategist sums up the ugly year in Japanese stocks:
“As Japan’s economic growth momentum has slowed, structural reforms have generally been moving at a snail’s pace and the Bank of Japan (BOJ) hasn’t taken any further easing action, Japanese bulls have been growing impatient. Quick institutional money has been leaving the country in recent months, and the Japanese stock market is no longer the most crowded trade in the world, as it was last year.”
But Koesterich remains firm in his ardor for Japanese stocks, boiling his bull thesis down to five key points, which we’ve edited for length (you can read the full presentation here):
It’s a bold call in the face of crumbling prices for Japanese equities, the sinkhole of unfavorable demographics and the other factors cited by the bears on Japanese stocks. Heck, so much of the bull case has to go right at the same time that the BlackRock call could be as much of a Hail Mary as Abe’s reforms.
But it’s axiomatic that you’re supposed to buy stocks when they are low, and outside of Japan, it sure is hard to find good bargains in developed markets these days.
As this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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