Political parties, sportsmen and economies prove what falls down doesn't always come back up
Managers of Japanese funds have had a rough ride these last few years. They may be operating in the world's second largest economy, but the morning analysts' meetings have all the glamour and status of an invitation to join the board of Independent Insurance.
Every now and then, when a turnaround threatens, the hapless Japanese fund manager is allowed just a few more minutes to make the case for an unmissable buying opportunity. The assembled big hitters fiddle with their pens or personal organisers until he finishes a curiously apologetic explanation as to why it is all just about to take off.
And at least once a year, Japan is given just one more chance. There is always a new factor somewhere which justifies a fresh look, and because it is such a large market, the fear of missing the turnaround when it occurs is enough to encourage policymakers to take steps to cover their vulnerable parts.
Most investment committees have just been through such an episode. In April, after the appointment of the tousled-haired new Prime Minister Junichiro Koizumi, the stock market sprang to life, with the Topix index leaping 20%. Aha, said the Japan bulls ... here we go! This is what we have been waiting for: a bit of confidence, interest rates heading down, consumer spending up. Fill yer slippers.
Alas. Like so many rallies before it, this one has spluttered and died after an indecently short period. It would be a big joke if it weren't so unfunny. One explanation for the repeated disappointments may be that when someone wants to know about the prospects for Japan, they ask a Japan fund manager.
Big mistake. What is he going to say? 'This market is actually in terminal decline. I'm just here because I can't get a job elsewhere'? No, he's going to talk about individual turnaround stories, the uniquely different business culture, the deceptive influence of global index construction and 'low hanging fruit.'
Much better to ask, say, a US fund manager about Japan. Then you will get a realistic assessment. Or at least helpful pointers. 'I'm buying Denver, Colorado-based Cherry Blossom Inc, because demand in Japan for its smile-inducing widget is growing exponentially.'
What investment committees are hearing at the moment is 'Sure, have a punt of Japan. It is not like we are overwhelmed with any more exciting opportunities. We might as well hold on for the bounce after Koizumi carries the Upper House election at the end of July. By then we'll know if it's time to buy the US again.'
The truth is, despite individual companies improved balance sheet management etc etc, Japan's woes are increasing. Quarterly GDP growth figures are not encouraging, numbers about consumer demand are mixed, companies are still producing masses of stuff they can't sell and interest rates are too high. The fragility of the enthusiasts case is being underlined by a new angle to their 'strategy.' Never mind, they say, once the US picks up again later this year, it will lift all boats. Really? Demand will surge once more as US consumers ignore home products (inventories have built up there as well) and buy Japanese! As IF. It is not axiomatic that once-great economies, political parties, tennis players or any other high-performance phenomena inevitably bounce back from their lows. Popular history and the markets are littered with examples of relentless decline. For investors mulling Japan, the question is: Does a rising tide lift leaky boats?
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