If You Buy Japan Recovery, You Need One Megabank
May 30, 2011
As outlined last week, global fund managers continue to be constructive about Japanese equities, despite the lackluster movement in Tokyo stocks, the continued strength of JPY/USD since the Tohoku Disaster on March 11, 2011 and the greater-than-expected decline in Japan’s economy. Tokyo Stock Exchange data show no abatement of record net buying of Japanese equities over the past couple of weeks, particularly from North American investors.
The bear case against Japan is extensive, well-chronicled and to many, persuasive. But value investors say the macro story obscures the many individual company opportunities that fit classic value investor criteria. Japanese equities are attractive to such investors because, a) valuations for Japanese securities are on the whole very cheap. While Japan may be a classic value trap, the yen is near its strongest level against the dollar since 1995. Then Japanese stocks staged a strong rally when JPY rolled over. b) More Japanese companies are recognizing shareholders as important stakeholders in their businesses by sharing profits through increased dividends and stock repurchases. c) Japanese companies are deriving new growth from some of the world’s fastest-growing economies in East Asia.
We have been consistently bearish on Japanese megabanks as chronic destroyers of shareholder capi
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