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Japan neu bewerten

Richard Kaye, Fondsmanager bei Comgest für Japan, versucht im folgenden Gastkommentar einige Vorurteile und Missverständnisse gegenüber Japan abzubauen. Erfahren Sie mehr über die aktuelle Marktlage, die Währung oder auch den Aktienmarkt in Japan hier: Funds | 09.07.2010 14:55 Uhr
Reappraising Japan When things get bad in Europe and America, experts love to point at Japan to show that at least things are much worse there. There are many misconceptions about Japan`s relative decline - but the biggest misconception is that it has any relative decline. Japan`s economy has consistently outgrown or matched the US` and Europe`s adjusting for inflation, and significantly outstripped both in constant currency. More importantly for Western investors, Japan`s stock market has outperformed developed market competitors in constant currency for two years. In fact, the 90s are the only period Japan underperformed, and only because 20% of Dow Jones constituents are `commodity proxies` which appreciated 7x between 1990 and 2005.

Since the Eisenhower era Americans have earned more from putting cash in the bank than from stocks: Dow Jones`s annual return since then has been 5.7%, S&P`s 6.1%, cf. average US interest rates through that period of 7.1%. (Of course, we learned last year that savings accounts could be riskier than stocks!). In this period, Nikkei 225 yielded 7.1% constant currency return. Japan`s blended indices in constant currency have again slightly outperformed Dow Jones, S&P, Nasdaq combined since 2000.

Japan`s problems have not been unique, but they have often forerun other countries`, probably because Japan does not borrow from everybody else so does not put off its day of reckoning. Thus Japan is further along at dealing with those problems. Japan`s failure to create growth by government `fiat` after the Plaza Accord halved its export business, and its decade-long recovery from an asset bubble, prefigure the late 2000s in the US or -  dare one say it? - China after an RMB hike. Its demographic time bomb, which Japan is already quietly defusing (see later), will be hideously echoed in China in a decade. The perceived underperformance of its stock market versus the commodity-heavy Dow indeed portends the underperformance of Equity as an asset class versus Commodities. The rise of the Yen (as the Euro) is a denial of the global benchmark currency, at least the Fed`s authority arbitrarily to ascribe worth to it.

The second misconception about Japan is that it is close to sovereign default. Debt is 211% of GDP. However, US debt is 172% counting GSE obligations, well North of 200% counting Social Security obligations and unlimited counting FDIC obligations. China`s famous fiscal and current account surpluses and currency reserves combined, which are now being spread around by the Communist Party to global investors` excitement, would not even afford Western-standard healthcare for all Chinese, let alone broader social provision - small wonder Chinese people save so much. Thus, all governments have obligations they absolutely cannot keep, and either fake their commitments by inflating or renege. At least Japan`s debt is held by its people, not its enemies, who have the savings to absorb it.

Again, I think Japan`s debt situation encapsulates the general global challenge to the twentieth-century model of government: should it be the Great Provider, Ultimate Backstop, Ascriber of Value? That model was tested globally in 2008, but not yet to the limit.

A third misconception is that Japan is hopelessly bound by arcane protectionist traditions. True, the US Occupation bequeathed byzantine regulations which Japan has struggled to undo. However, a decade before the West, Japanese companies started to deleverage, wherein lies an explanation why ROEs are generally below other developed countries even though EBITDA margins are getting closer. Deleveraging has not merely made Japanese corporate balance-sheets the strongest in the world, it has undermined the most powerful organ of the bureaucracy the Post Office bank, the world`s largest. Like Fannie and Freddie, but on even grander scale, this single institution rendered uncompetitive the entire banking and insurance industry.

More importantly, the confiscatory corporate tax regime, wherein lies an explanation with valuations have historically seemed high, is finally being circumvented as more and more companies leave profits at overseas subsidiaries.

Lastly, most of the Japanese labor force has never enjoyed the lifetime guarantee with which the country is notoriously associated. The small business backbone of Japan has been every bit as ruthless in employment practice as other countries; this shows in large companies` P&Ls as `outsourcing costs` instead of `personnel costs`.

A fourth misconception is that Japan must be stagnating because its population is aging. First, retiring baby-boomers are in fact a boon to old companies` fixed costs.

Second, Tokyo, and select other regions like Okinawa and Shiga, are in fact witnessing population growth, to which investors can gain exposure for example through real estate developers or cellular operators.

Third, where there is population peak-out, the consolidators of maturing industries - Yamada Denki in electronics retail, Sugi in pharmacy chains, NRI in IT services, JCOM among cable providers - make excellent investment vehicles.

Lastly, there is no statistical evidence that Japan is `against` immigration. There are as many `alien card` holders in Japan as H- and L- visa white collar workers in the US - about 2% of the population. There is also a growing and unregistered population of Japanese-blood Brazilians in temporary manufacturing jobs.

A final misconception is that Japan is surrendering all its industry to Asia. If we look only at one representative manufacturing industry, Technology, we can show that those areas Japanese companies have quit or are quitting have already become in fact endemically commoditised and profitless.

Thus, there were six companies making DRAM; there is now one. There were nine companies making displays; there are now three. There were twelve companies making cameras; there are now seven. There were nine companies making handsets; now there are five.

Rather, the largest components of Technology sector profits in Japan are today Office Automation (especially, LBP or Laser Beam Printer), games, and car electronics, which are increasingly global oligopolies. Canon`s LBP business, which it pursue globally through its OEM relationship with Hewlett-Packard, has effectively been invulnerable because of Canon`s vast first-mover merit, which would prevent a discounting newcomer from achieving return on capital in an acceptable time period.

In conclusion, the direction of Japanese equities depends less on endogenous factors than on the resolution of three global paradoxes. 1) Japan`s share of global equity investment is the lowest in 40 years. At the same time, the highest-allocated equity market of the US has, as we showed, delivered negative real returns for 50 years. 2) Global markets spent only two quarters in the penalty box after the 2008 crash. At the same time, the Dollar (viz the DXY index) is weighed down by US debt to the level where the Bretton Woods structure collapsed 40 years ago. 3) There is no limit to consensus optimism about China, but America`s debt and declining currency are nearly as much China`s problem as America`s, and America`s avoidance of hyperinflation is contingent on China`s refusal to revalue the RMB. If one jumps the other has to fall.

The foreign investor alone can address these paradoxes, and the foreigner remains the marginal investor in Japan.

If Japan were fairly reappraised, I have tried to show that we would see it honing for 20 years responses to the problems the West faces now, and China will face soon. But after all, the question remains: why do we misperceive Japan so? I think the answer is: because it wants us to. And that is a whole new topic.


Richard Kaye graduated from Oxford University where he majored in Oriental Studies. He started his career in 1994 with Industrial Bank of Japan as an analyst of technology stocks before joining Merrill Lynch in 1996 in the same role. He went on to work for Wellington Management Company as portfolio manager of Japanese TMT stocks before joining Comgest in 2009 as a fund manager for Japan.


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