If all the surprises to hit investors of late, one of the most curious is that Japan is home to the best-performing major stock market this year. While America's benchmark index, the Dow Jones industrial average, has plunged nearly 13 percent, its Japanese counterpart, the Nikkei 225, has held up relatively well, growing 3.9 percent in dollar terms this year. Though slender and partly inflated by the yen's rise against the dollar, these gains suggest that Japan is worth a second look for those willing to venture overseas to broaden their portfolios.
As in past years, Japan's stock market has taken its cue from a mixture of positive news and relief. This year, a recovery in exports is pulling the country out of recession, lifting shares of electronic, semiconductor, steel and auto companies. Despite high unemployment and falling wages, the Japanese have continued to shop, stabilizing the largest part of the economy, consumer spending. Investors were also encouraged in February when the government took steps to head off a banking crisis.
PHOTO: AP
Absent, too, are the accounting scandals and mammoth bankruptcies that have engulfed US and European markets, helping turn the Nikkei, in some small way, into a haven. Indeed, Japan's decade-long bear market has washed away much of its own bubble-era excesses and Internet-driven mania.
While that has pushed the Nikkei index 75 percent below its 1990 peak, it also means prices for some of the world's biggest manufacturers are at their lowest levels in years. "Don't overestimate the weakness in Japan," said Philip Lung, senior fund manager at UAM Investment Trust Management in Tokyo. "People are looking for the downside" but should consider the positives, too.
With US$300 million under management, Lung's funds, sold through two Japanese banks, have returned more than 4 percent each this year. Japanese small-cap funds, too, have performed relatively well. According to a ranking of global offshore investments compiled by Business Week and Standard & Poor's, Japanese funds held 21 of the top 25 spots in the second quarter, with investments managed by Jardine Fleming, Fidelity and Mercury all returning more than 10 percent.
Fund managers in Tokyo, though, all temper their optimism. Domestic banks are still a mess, burdened with bad loans and struggling to eke out profits. With interest rates near zero and the deficit growing, the government and central bank have exhausted most of their fiscal and monetary arsenal.
The upheaval in US markets has also led foreign investors, who were big buyers of Japanese stocks earlier this year, to sell Japanese shares to lock in profits and offset losses back home. That has taken some of the shine off the Nikkei in the last six weeks. Fortunately, Japanese retail investors have picked up some of the slack, keeping a floor under the stock market, at least for now.
As worrisome, figures out last week showed the US economy growing at a slower rate than previously thought. Since one-third of Japan's exports are shipped to America, if the US dips back into recession, it could take Japan with it.
"Quite frankly, the US economy is crucial to everyone," said Simon Jones, who helps manage US$14 billion for JP Morgan Fleming Asset Management in Japan. "We're not under any illusions; if the US slows, Japan will, too."
Should America's economy and stock prices stabilize, though, pressure on foreign investors to sell their Japanese shares will diminish, said Kathy Matsui, a Goldman, Sachs strategist. In that event, the Topix index, a collection of all first-section shares on the Tokyo Stock Exchange, could hit 1,100 by year's end, about 15 percent above current levels, she said.
Even if the outlook remains in flux, analysts say there are well-managed companies whose stocks are trading below 20 times this year's earnings, a low benchmark in Japan. For example, Toyota Motor, the world's third-largest automaker, is trading at 16 times earnings even though it recently raised its global sales target for 2002 by 3.8 percent and said it would expand production by nearly 8 percent at home.
Two other well-run carmakers, Honda Motor and Nissan Motor, are trading at just 10 times their earnings despite record profits and updated models -- the Accord for Honda and the Z for Nissan -- that are expected to sell well.
While technology shares have fallen out of favor with many investors, Goldman recommends looking at Canon, Japan's largest maker of office equipment, which is getting a lift from strongdemand for its digital cameras. Sharp and Fuji Photo Film are two other leaders in the production of digital cameras and LCDs. Like Japan's three largest car companies, Canon and Fuji also list American depository receipts in New York, so US investors can buy them in dollars.
Another company with American depository receipts that consistently reports record profits is the Kao Corp, Japan's largest maker of household goods. The country's largest drug maker, Takeda Chemical Industries, and Shionogi & Co, which has a cholesterol-lowering drug called Crestor, have good long-term prospects as well.
Not just individual stocks, but the market over all is cheap compared with 1994 and 1999, just before two other rallies. Companies listed on the Topix are trading at 22 times their forecasted earnings for this fiscal year. That is just a third the level of 1994 and half what they traded at three years ago. The lower valuation ``is not quite the same as claiming that it is cheap, but at least it is not as expensive as before,'' said Richard Jerram, an economist at ING Barings in Tokyo.
Nvidia Corp’s demand for advanced packaging from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remains strong though the kind of technology it needs is changing, Nvidia CEO Jensen Huang (黃仁勳) said yesterday, after he was asked whether the company was cutting orders. Nvidia’s most advanced artificial intelligence (AI) chip, Blackwell, consists of multiple chips glued together using a complex chip-on-wafer-on-substrate (CoWoS) advanced packaging technology offered by TSMC, Nvidia’s main contract chipmaker. “As we move into Blackwell, we will use largely CoWoS-L. Of course, we’re still manufacturing Hopper, and Hopper will use CowoS-S. We will also transition the CoWoS-S capacity to CoWos-L,” Huang said
Nvidia Corp CEO Jensen Huang (黃仁勳) is expected to miss the inauguration of US president-elect Donald Trump on Monday, bucking a trend among high-profile US technology leaders. Huang is visiting East Asia this week, as he typically does around the time of the Lunar New Year, a person familiar with the situation said. He has never previously attended a US presidential inauguration, said the person, who asked not to be identified, because the plans have not been announced. That makes Nvidia an exception among the most valuable technology companies, most of which are sending cofounders or CEOs to the event. That includes
INDUSTRY LEADER: TSMC aims to continue outperforming the industry’s growth and makes 2025 another strong growth year, chairman and CEO C.C. Wei says Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), a major chip supplier to Nvidia Corp and Apple Inc, yesterday said it aims to grow revenue by about 25 percent this year, driven by robust demand for artificial intelligence (AI) chips. That means TSMC would continue to outpace the foundry industry’s 10 percent annual growth this year based on the chipmaker’s estimate. The chipmaker expects revenue from AI-related chips to double this year, extending a three-fold increase last year. The growth would quicken over the next five years at a compound annual growth rate of 45 percent, fueled by strong demand for the high-performance computing
TARIFF TRADE-OFF: Machinery exports to China dropped after Beijing ended its tariff reductions in June, while potential new tariffs fueled ‘front-loaded’ orders to the US The nation’s machinery exports to the US amounted to US$7.19 billion last year, surpassing the US$6.86 billion to China to become the largest export destination for the local machinery industry, the Taiwan Association of Machinery Industry (TAMI, 台灣機械公會) said in a report on Jan. 10. It came as some manufacturers brought forward or “front-loaded” US-bound shipments as required by customers ahead of potential tariffs imposed by the new US administration, the association said. During his campaign, US president-elect Donald Trump threatened tariffs of as high as 60 percent on Chinese goods and 10 percent to 20 percent on imports from other countries.
RSS