Playing Japan

FATHEROFTWO_2

Ive been looking at the japanese market and to many analysts there are problems arising in the future but when that event happnes no one knows .

The debt crisis in Japan is approaching critical with a very high level of debt and low inflation that has existed for many years the debt is partly funded with the population of japan buying government bonds but soon the aging population will want to cash in these bonds and there lays the problemI know that many funds avoid/exclude japan in there folios.

No doubt there is a way to play the market.
If the japanese economy goes into freefall with hyperinflation the bonds will drop through the floor and the value of Japanese companies will go through the roof perhaps 4 fold .

Is there a way to play this potential crisis with a currency hedge to benefit from this possible scenario?

Jegersmart

FATHEROFTWO wrote: »

If the japanese economy goes into freefall with hyperinflation the bonds will drop through the floor and the value of Japanese companies will go through the roof perhaps 4 fold .

Is there a way to play this potential crisis with a currency hedge to benefit from this possible scenario?

I don't understand what you are proposing - could you clarify what the scenario is?

Reaper

FATHEROFTWO wrote: »

If the japanese economy goes into freefall with hyperinflation the bonds will drop through the floor and the value of Japanese companies will go through the roof perhaps 4 fold .

Is there a way to play this potential crisis with a currency hedge to benefit from this possible scenario?

I think you are saying if the currency collapses that will help Japanese companies. The downside of a falling currency is more expensive imports, and Japan has to import a lot as it lacks most raw materials. However as a big exporter it will give a boost to exports.

A falling currency will also make any investments you have over there fall in value unless you have a currency hedge.

I bought into the Neptune Japanese Opportunities fund because (at least at the time when I bought in) it was well hedged against a currency fall so I hope it will rise in value even if the currency falls.

But bear in mind Japan has been in the doldrums for decades and perhaps nothing will happen for decades more.

Loughton_Monkey

Jegersmart wrote: »

I don't understand what you are proposing - could you clarify what the scenario is?

I second that request. It is very unclear.

These ageing Japanese sitting with their government bonds can't just 'cash them in'! You wait until they mature. Are you saying the Japanese government can't pay back the capital? [Unlikely in the extreme].

The only other scenario is that they sell the bond to someone else at its 'market value'. This may produce a spanking profit - or a huge loss. I don't know. But how will a bunch of 'oldies' selling their bonds to someone else affect inflation, or the price of equities?

FATHEROFTWO_2

Ive been reading a bit about the problems that Japan have got at the moment and one is the ageing population.

The vast majority of japanese older investors haved a tendency to buy there own government debt this is one of the few things that is keeping the Japanese economy solvent and able to keep there interest rates low as the Japanese tend to accept it knowing that they are still geting a few percent on top of there almost negative inflation so they are ahead of the game.

However once the older generation stop loaning the government money and wish to cash in there holding then the government will be forced more to borrow cash from overseas at a higher rate due to the potential for default .The coupon rate will soar similar to Greece and the debt will become unserviceable.

Japanese investors will then look to invest in japanese shares sending there values in the nikkei much higher as it will be more of an advantage than a falling bond value and the impending hyperinflation resulting from the plummetting yen and creating another bubble.

The Japanese economy has been in recession with deflation for years and it may at some point in the future default.
I have read that it may be the play of the decade.

Question is how do you go about playing this scenario using an investment fund.I am not a day trader but a long term investor in managed funds with a handfull of individual shares only in the higher risk bracket but generally my position is medium to growth outlook.This scenario might be worth adding as a very small adition to my fund portfolio

What Im suggesting is rather complicated to understand but Im looking for a way to play the market using a managed fund.

Perhaps Dunstonh or some of the day traders know a way to postion themselves for this scenario.??

Linton

Your scenario doesnt add up for me. With the collapse in the Japanese economy you are suggesting wouldnt the Japanese banks and a fair number of Japanese companies fail? How much would your Yen denominated investments be worth?

I guess you could try out your strategy - how about a few investments in Greece and Portugal. The scenario you suggest for Japan is perhaps rather closer there.

FATHEROFTWO_2

The japanese line of credit would collapse resulting in hyperinflation but the companies would not go bust.....we are talking about Toyota....sony ...Nissan ...so its unlikely

Im not interested in Greece just Japan and how the scenario will play out.......

If you google japan default you will see that the country is technically insolvent and this scenario is a strong possibility....its how the patient investor positions himself for this scenario

Reaper

FATHEROFTWO wrote: »

hyperinflation resulting from the plummetting yen and creating another bubble.

There are different parts of your scenario you can position on. As you belive the currency will collapse the obvious move is to make a bet on the Yen falling. You could use forex spread bets, or how about an ETF? The SPJJ ETFS compares the Yen against the dollar. If the Yen goes down against the dollar you make money, and of course the reverse is true.

FATHEROFTWO_2

Reaper wrote: »

There are different parts of your scenario you can position on. As you belive the currency will collapse the obvious move is to make a bet on the Yen falling. You could use forex spread bets, or how about an ETF? The SPJJ ETFS compares the Yen against the dollar. If the Yen goes down against the dollar you make money, and of course the reverse is true.

Thanks....this would involve me shorting the Yen.
However I do not know when this event will happen and I dont want to use a short that would result in the promise being filled and is a tad above my appetite for risk .This plan would also not allow me to benefit from any rise in the Nikkei.

I prefer to use funds although I do have some ETFs in Gold...had an Etf in silver bit sold a few months ago with a health profit.

IS Ther an all encompassing fund that does it all for you?

Reaper

Sounds like the Neptune Japan Opportunities fund I mentioned before might fit your criteria. Have a read of this article discussing his strategy:
http://www.investorschronicle.co.uk/InvestmentGuides/Funds/article/20110405/9cdb6000-5ea5-11e0-8dea-00144f2af8e8/Yen-strength-costs-Neptune.jsp

The fund has not done so well recently because of his hedges against the Yen which meant it was hurt by a falling pound, but it is well positioned for a Yen collapse with both the currency hedge and by concentrating on exporters. Note though that the manager is a controversial figure and has been known to short the market. It worked out very well for him but investors wanting to invest in a market don't always appeciate discovering it has been positioned such that they only make money when it falls!

FATHEROFTWO_2

Reaper wrote: »

Sounds like the Neptune Japan Opportunities fund I mentioned before might fit your criteria. Have a read of this article discussing his strategy:
http://www.investorschronicle.co.uk/InvestmentGuides/Funds/article/20110405/9cdb6000-5ea5-11e0-8dea-00144f2af8e8/Yen-strength-costs-Neptune.jsp

The fund has not done so well recently because of his hedges against the Yen which meant it was hurt by a falling pound, but it is well positioned for a Yen collapse with both the currency hedge and by concentrating on exporters. Note though that the manager is a controversial figure and has been known to short the market. It worked out very well for him but investors wanting to invest in a market don't always appeciate discovering it has been positioned such that they only make money when it falls!

From the article the relevant point is quoted below.
Is there any other funds to compare this with or what would the search factors be using trustnet/morningstar be for example would be it be japan hedge or similar?

Mr Taylor is sticking to his guns. In his latest investment report, he said: "We maintain our conviction that the yen's appreciation is not sustainable and firms with high overseas capacity and sales will do best. The foreign currency hedge remains in place on the fund as the yen will fall - and keep on falling - due to the country's indebtedness."
Mr Taylor also maintains that global multinationals are in the best position of all Japanese companies, whatever the final outcome following the earthquake disaster.