POSTED BY ANGUS GEDDES
Asian markets were mixed on Tuesday with the Nikkei 0.81% higher at 20,230 and the CSI 300 off 0.2% at 3,546. The strength for Japanese equities came as the yen weakened towards ¥112 against the US dollar. I think that the weaker yen is certainly going to be positive for the Nikkei, but what has changed is the economic recovery in Japan, and this time (after many false starts over the past three decades) could well be different.
We have over-weighted Japan in the Fat Prophets Global Contrarian fund and we have added a number of additional names, including household staple Sony.
I recall visiting Hawaii with my parents once in the 1980s when the Japanese economy was at the “top of its game.” And the property and stock markets in Japan reflected this by entering a dangerous bubble. The social dynamics were interesting, and at the time, we visited the Alamoana Shopping Centre in Hawaii – where the Japanese dominated the inbound tourism markets. I recalled watching some of the Japanese tourists smoking cigarettes outside luxury shops and only inhaling a small part before discarding the butts. At the time, the Imperial Palace of Tokyo was valued at more than the entire state of California.
One economist at the time observed this to be correlated with Japan’s bull market and euphoric feeling of economic invincibility. Of course what was to ensue over the next three decades was one of the worst economic depressions in history. But nothing lasts forever, and I believe Japan will undergo a major renaissance over the next five years and surprise just about all of us, despite ubiquitous prognostications (available from about just about everyone) of the demographic implosion.
In Australia, the market had a down day, despite the records being set on Wall Street, with the ASX200 closing the session down 48 points or 0.8% at 5757. Weighing the most on the index were the banks (with Moody’s issuing a downgrade in line with S&P) although most sectors were under some pressure, with gold and energy stocks losing 2.4% and 1.5% respectively. The A-Reit index was down 2.1%, and we have spotlighted a potential arbitrage play in this sector (versus the US space) which will be included in tomorrow’s daily.
One stock that would perform very well under a lower currency scenario is Mantra, which is exposed to the inbound tourism market. The stock had an outside day on Tuesday, rising as investors possibly drew their own conclusions regards Morgan Stanley’s call on the A$. Given that Australia’s major tourism inbound markets are all performing well, a lower currency would likely further stimulate what is already a fast growing industry. I see a breakout in Mantra above $3.10 as being evitable, and we hold a significant holding in the Fat Prophets Global Contrarian Fund and the Australian Managed Accounts.
