Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20
QE4EVER! - 9th Sep 20
AMD Ryzen Zen 3 4800x 10 Core 5ghz CPU, Cinebench Benchmark Scores (Est.) - 9th Sep 20
Stock Traders’ Dreams Come True – Big Technical Price Swings Pending on SP500 - 9th Sep 20
Should You Be Concerned About The Stock Market Big Downside Rotation? - 9th Sep 20
Options Traders Keep "Opting" for Even Higher Stock Market Prices - 8th Sep 20
Gold Stocks in Correction Mode - 8th Sep 20
The law of long-term time preference and Gold ownership - 8th Sep 20
Gold Bull Markets: History and Prospects Ahead - 8th Sep 20
Sheffield City Centre Coronavirus Shopping Opera Ahead of Second Covid-19 Peak - 8th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Japan Quake Stock Market Crash, Is it Time to Buy?

Companies / Japanese Stock Market Mar 18, 2011 - 09:54 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleMartin Hutchinson writes: With a magnitude of 9.0, the March 11 earthquake in Japan was the worst in that country's 300-year history and was the fifth-worst the world has ever seen.

That trembler, coupled with the devastating tsunami that followed, ignited a flurry of fears and caused a two-day sell-off that sent Japanese stocks down 17%. The sell-off wiped out more than $650 billion in shareholder wealth.


Keynesians, with whom I normally disagree, said the required reconstruction work would be financially beneficial for Japan.

From an economic standpoint, that's total nonsense: It contradicts the "Bastiat broken windows paradox," as I will explain. But for investors, Keynes might as well have been right - meaning the Japanese stock market is actually quite attractive.

Why Japan is a "Buy"
The French free-market economist Frederic Bastiat (1801-50) predated John Maynard Keynes (1883-1946) by almost 100 years, yet he had elegant disproof of one of Keynes' central contentions - that public spending, no matter how useless, helped an economy.

Bastiat postulated a village in which there were unemployed glaziers. Those glaziers could be put to employment if they employed the local youths to break all the village's windows. The glaziers would then get work.

If we consider Keynes' theory, the glaziers would be richer. But Bastiat would tell us that, in reality, window-breaking would impoverish the non-glazier villagers, who would be forced to pay for window repairs instead of buying other things that they wanted or needed (which would create jobs elsewhere) or saving the money (which would increase the village's stock of capital, improving its living standards in future years).

In short, the village would be impoverished - not enriched - by the window breaking.

The same is true in Japan, where the earthquake's damage has made the country poorer, not richer. This is obvious to ordinary people, but not, apparently to economists or to several bank analysts, who have produced pieces rejoicing on the additional gross domestic product (GDP) that would be created.

That's a true statement, as far as it goes: Additional GDP would be created by the construction work, but that's a flaw in the GDP statistic, which does not recognize the negative output produced by the earthquake's damage.

On the economic argument, I have to say that Bastiat is the victor.

When we talk about investors, however, Keynes might also be right.

You see, the list of those hurt financially by the earthquake include the Japanese government (so don't buy Japan's government bonds), insurance companies (who will make up their losses through higher future premiums) and the unfortunate Japanese people themselves. The financial beneficiaries, on the other hand, will be construction companies (mostly quoted on the Tokyo Stock Exchange), and housing companies (ditto) together with capital equipment manufacturers (ditto II.)

Of course, even among listed companies, there will be some losers. Tokyo Electric Power Co. (PINK ADR: TKECY), or TEPCO, the unfortunate owner of the damaged Fukushima Daiichi nuclear power station, will lose a functional power plant that may not have been fully insured, and will suffer endless clean-up costs and compensation claims. Clearly not a "Buy."

Then there are Bastiat's "losers," particularly the manufacturers of luxury goods, which will not sell as much in Japan because consumers will have to spend money on rebuilding. Apple Inc. (Nasdaq: AAPL) has postponed the March 25 launch of the iPad 2 in Japan, while stocks in the likes of LVMH Moet Hennessy Louis Vuitton SA (PINK ADR: LVMUY) and Hermes International SA (PINK: HESAF) have been badly hit.

In any case, most of Japan's equity value is in the big exporters, such as Toyota Motor Corp. (NYSE ADR: TM) and Sony Corp. (NYSE ADR: SNE). These companies have been forced to close factories and other operations for a few days. But their international sales have been unaffected and they should be able to make up production quickly - from factories outside Japan, if necessary.

The only proviso here is that the Bank of Japan (BOJ) must prevent the Japanese yen from rising too far (which is what the currency did following the Kobe earthquake in 1995) since a super-strong yen would choke off exporter profitability.

Immediately after last Friday's earthquake, however, the BOJ immediately bought another $180 billion of bonds in its own "quantitative-easing" move, so it looks like it got the message from the export community.

That brings us to the stock market itself.

Four Firms That Figure to Gain
Since achieving its post-financial-crisis bear-market lows in March 2009, the U.S. Standard & Poor's 500 Index is up 86%. Japan's Nikkei 225 Index is up only 27% during the same period. The S&P is currently trading at about 16 times earnings, while the Nikkei is carrying a Price/Earnings (P/E) ratio of 14.2.

Clearly, there's room for growth in select Japanese stocks.

To play the Japanese market overall, there's the iShares MSCI Japan ETF (NYSE: EWJ). Among the exporters, Toyota Motor Corp. (NYSE ADR: TM) and Sony Corp. (NYSE ADR: SNE) will do fine.

Kubota Corp. (NYSE ADR: KUB) is a major Japanese maker of construction equipment, pipe-related products and components for water and other environmental systems - all things that figure to be in big demand.

Finally, you should look at Daiwa House Industry Co. Ltd. (Pink Sheets ADR: DWAHY), one of Japanese largest housing manufacturers. Like Kubota, Daiwa House has a product that figures to experience a lot of demand.

Bastiat was right, economically; but if we ignore him, we can see why Japan is a "Buy."

[Editor's Note: There's a segment of the stock market whose investment returns are five times that of the typical stock.

But here's the problem: Only 1% of investors know about it.

Fortunately, Money Morning Contributing Editor Martin Hutchinson is among that 1%. The 37 years he spent as an international merchant banker gave him that knowledge, and that insight.

Now you can access that insight.

With Hutchinson's The Merchant Banker Alert advisory service, you can crack this "rich-man's market," discover the identities of those stocks - and reap those massive gains yourself.

Click here for a report that shows you how to get started.]

Source : http://moneymorning.com/2011/03/18/why-japan-is-a-buy/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Intrinsic Value
19 Mar 11, 05:16
Me too

Just read a research report out of soc gen noting if Nikkei falls another 20%, you should buy with both hands.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules