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Investing In Asia |
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| Written by tolumi | ||
| Friday, 05 December 2008 11:11 | ||
Investing In AsiaAlready, Japanese consumers are free to buy foreign stocks, bonds and mutual funds, and they can keep their money in foreign-currency banks accounts. They can now choose a foreign stockbroker rather than a Japanese one, and since October they’ve been able to negotiate a commission directly with their broker instead of having to settle for the standard going rate. The impact of this last move is already severe. Commission rates have dropped so low that many of Japan’s biggest stockbrokers are feeling the pinch. Of the 2,000 brokers now trading in Japan, some observers think that only 20 or so will be able to survive the full onslaught of foreign competition. Many of the rest will fall into the hands of the hundreds of foreign institutions eager to get their hands on this massive market but Big Bang also sends another message about how Japan’s business climate is about to change. Investing In Asia & TokyoOnce Tokyo’s institutions have been forced to compete head-to-head with their international rivals, it follows that their investors will start to demand international-sized profits from their companies, and that the banks’ customers will start to demand international-sized returns on their deposit accounts. Now that Tokyo’s stock market investors are free to buy foreign shares and foreign investment trusts for their pension funds, are they likely to be satisfied with the paltry profits and dividends that they now accept as standard from their Japanese investments? Do we really need to ask?The more you think about this change in the business climate, the easier it is to get frightened. In theory, the best way for Japanese companies to start delivering these higher profits will be to slim down their workforces now. But the government doesn’t want higher unemployment either, because it would be bound to send the retail spending figures down at precisely the moment when they seem to be recovering. Indeed, it might even provoke a kind of social revolt that most Japanese would regard as completely unthinkable. What to do? Investing In Asia & The Prime MinisterNothing, seems to be the response so far. Prime Minister Ichiro Ozawa’s Liberal Democrat government has always been rather good at avoiding direct confrontations with its adversaries, preferring to negotiate behind closed doors whenever possible, and it’s behaving true to form at the moment.. Consensus is a pattern of political behaviour that goes back half a century or more. But today’s consensus has been built upon generations of patronage, factionalism and often institutional corruption on a scale that would shock Westerners although it doesn’t seem to bother the Japanese very much. On the plus side, it’s allowed Japan to grow fast and without social tensions; but on the minus side it doesn’t provide much of a platform for major social or economic revolution.Unfortunately, a major economic revolution is what Japan needs most at the moment. The old corporate traditions of big cheap loans, zero costs of capital, inefficiency and poor profits (plus poor dividends, of course) have really got to go if Japan is going to compete in the international markets of the twenty-first century. In the last analysis, its investors will accept nothing less. And if we had any doubts about the long-term inevitability of this change, we wouldn’t be suggesting that you think about buying Japanese stocks now. Investing In Asia - As Things StandAs things stand, Tokyo’s p/e ratio of 80 seems extortionate. But consider three things. First, company earnings are artificially depressed at the moment because companies are writing off their old liabilities: if we could only find a way of cutting through the fog of Japanese accountancy to the true profits, we might find that the true p/e was closer to 50. Secondly, things can only get better. And thirdly, the tidal flow of money coming into Japan at the moment is having a beneficial technical effect, which we can hardly afford to ignore.At the beginning of this article we made a passing mention of a rather startling fact. The Nikkei 225, we said, has done well enough this year, but the Second Tier index on the Tokyo stock market has grown four times as fast. That’s a big discrepancy to find in any country. What’s going on? Investing In Asia & NikkeiWorse, the Nikkei is heavily loaded with the kinds of big consumer-oriented companies that are suffering worst at the hands of consumer reluctance - Sony, Nissan, Mitsubishi and all the big banks. But rival indexes like the Second Tier (or the main-market Topix index, for that matter) will show you a better sampling of go-ahead firms like Softbank, a Japanese software company that’s now bigger in capital terms than the mighty Sony itself - and largely invulnerable to the consumer downtrend because it deals directly with businesses instead. If you make only one new year’s resolution this January, resolve to forget the Nikkei and watch the Topix instead.
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| Last Updated on Tuesday, 06 January 2009 14:04 |