Japan as an investment area?

turbobob

I was thinking about investing in Japan through an OEIC. I've been looking at investing through the GLG Partners (ex Societe Generale) Japan Core Alpha fund, or possibly Neptune Japan Opportunities or Schroder Tokyo. What is the opinion on investing in Japan at the moment? What is the general outlook?

It seems to me that as a nation they have gorged on debt less than the West. They also still have a strong manufacturing base (although its increasingly being outsourced to China) and a highly skilled workforce. What impact will the very strong Yen have in any of this?

Any thoughts or whatever appreciated

jon3001

I think some exposure is always worthwhile in a diversified portfolio. The strong Yen has helped limit some of my portfolio losses despite recent market slumps.

You are right that debt levels are much less than in the west (in common with many Asian countries). I'd expect Japan will want the Yen to weaken to encourage export. In truth I don't really have an opinion on the prospects of the Japanese economy but have some exposure because its a major market and belongs in a diversified portfolio.

In terms of exposure I ended up using index trackers (e.g. HSBC Japan Index). Boring I know - but I think it was actually top quartile performance for its sector last time I looked. The managed funds were all over the place.

• GLG have outperformed in the past 5 yrs but the general difficulty that managed funds have doesn't inspire confidence with me. Who knows if GLG will maintain their performance? If you must go managed then it's probably the best punt.
• Neptune somehow 'got lucky' with an amazing surge out of the doldrums last quarter '08 but don't look consistent (did they move into cash to benefit from the strong Yen?).
• Schroder don't seem to offer much value over the index.

I actually split my Japanese allocation (which represents 6% of my equity holdings):

• 50% Index Tracker (will be mainly large-caps)
• 50% Small Company stocks

The introduction of international small company stocks is again for portfolio diversification although I'm actually diversifying against domestic small company stocks (if that makes sense). William Bernstiens "The Intelligent Asset Allocator" demonstates that adding international small company stocks to a portfolio of domestic small company stocks will reduce risk and increase performance. I have equal allocations of domestic and international small company stocks (spread across Japan, USA, Europe) but smaller allocations can be very beneficial too.



For the small company stocks I use:

• SWIP Japanese Smaller Companies (ISA)
• AXA Framlington Japan Smaller Companies (Pension)

At the time of selection they had reasonable performance compared to their peers (in what has been a dog sector) and adequate diversification (50+ holdings).

sabretoothtigger

I thought Japan was king of the debt, hence nothing dies nothing thrives except abroad. Havent looked especially but they are unique I think

Its probably worth it for the currency hedge alone. I read shares like Honda have had strong rises recently due to the drawn out demise of GM

also Japan is at a 3 month high ? so you wouldnt want a lump sum. Personally I would rather risk it on single shares in small numbers, unless you really believe in the country as whole which I dont at all, lots of overall problems imo.
Honda, Nintendo maybe must be lots of others but thats alot of work to check the financials on

tradetime

The Japanese stockmarket, from a perspective of historic values does imho warrant some consideration for exposure. As jon3001 says, I would expect Japan to take measures to stem the strength of the Yen at some point, they do have a history of open intervention in the currency. I do not have any Japanese exposure nor have I had any so far, as I have preferred China, India, Taiwan, and Singapore (though I have exited all but Singapore now.)

I would suggest waiting for a pullback here before entering anywhere in Asia at the moment, most Asian markets did not set significant new lows in March, (although Japan did) and are well off their November lows. Japan is a little bit of a laggard in the Asian region, but still about 20% off the March lows. Japan for me probably would be an underweight in terms of Asian countries though, hence no exposure to date.

dunstonh

Japan tends to give you all or nothing. As part of a rebalancing portfolio Japan can be useful as you can take advantage of those periodic jumps and losses that Japan usually gives us. However, as an invest and forget (which is not good but many do it) I wouldnt go near it then.

jon3001

sabretoothtigger wrote: »

I thought Japan was king of the debt

You're right.

I keep reading how they are a nation of savers so assumed by corollary that (household) debt would be low. However both household and government debt are high compared to GDP/incomes.

Did they blow the money? Or take advantage of low interest rates and move it into investments? I had heard that Japanese savers kept sending their money abroad (because savings accounts were paying so little) which caused the Yen to slide for many years.

sabretoothtigger

wow incredible, only Zimbabwe and Lebanon have more debt vs gdp then Japan, 170%
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt


This is long term or old data, Brown may have got them beat now and of course USA 'plan for recovery' is borrowing another 3 trillion during obamas term
Italy is our closest neighbour with 100% gdp debt and the highest asian country besides japan is singapore 96% but they did have alot of growth at least


Why is japan buying us treasury bonds if they have their own debt, that seems incorrect


Anyway I was looking at an asian tracker and its nearly back to september values, its exceeded the jan high.
I'd love to believe there was no crash but Im not sure that makes sense, by sept they of course had allready fallen further after rising even more then the dow, etc

Right now I get much less yield on asian stocks tracked then the western indexes offered however that could be interpreted, not sure if dividend investment is possible in japan

tradetime

Not to comment on any debt in particular, but I think the way the figures tend to be reported, it is all very mis-leading, as you say Japan is after China the biggest buyer of US treasuary bonds, and is considered a creditor nation, with large foreign reserves. All I know is that figures on debt rarely seem to tell the whole story.

turbobob

Thanks for all your comments. I think I will hold off and see what happens over the next few months.

Jon I agree about the Schroder fund. It doesn't seem add much over a tracker like Lyxor's Topix ETF. I'm not sure what the Neptune fund was doing but it has had interesting performance in the last year or so. I had read they were shorting the Topix index and that looks like it could have been the case for much of last year...

StevieJ

Very strong currency at the moment probably would not help in a long term investment.