Looking for Value Offshore

The Nikkei 225, the Japanese stock market key index, has risen almost 40% since its low of 2003 compared with the Australian market which has risen over 20% - a somewhat more cautious increase. The Nikkei started its run up over a month later - in April when it sat at its all time low of 7670 – compared to a high of almost 40,000 in the late 80’s!

The Nikkei has been much ignored for the last dozen years as the Japanese economy was beset with many economic woes. Japan was no longer seen as a serious contender for world economic supremacy. I recall as I visited Japan many times on business in the 70’s how impressed I was with the burgeoning economic might of this new Asian super power.

Not only was Japan hit hard by the world recession but the economy also had its own internal woes and has suffered a serious bout of deflation over the last several years. This was one of the reasons the US became so paranoid earlier this year about the dangers of deflation taking hold.

The Japanese market is like so many markets or stocks that investors turn their back on, they can quietly recover in the background and if you totally ignore the market you can miss out on extraordinary returns.

Have you missed the upturn in Japan? Have a look at the chart below for the Nikkei 225 Spot Monthly and you can put into context where the market is now. I don’t think it is useful to go back to the 80’s when the Nikkei hit 40,000 as those times are unlikely to be repeated within a predictable time frame – the global trade and industry structural changes over the last two decades have been too great to forecast a repeat of that Japanese economic explosion.

However there is still considerable upside to the Nikkei. The 40% move we have seen this year is a mini Wave 3 move up and there is still much more to go – but not without the usual pause. Like the US recovery, the Japanese has been a jobless one and when there are solid signs of new job growth then we will see the next move up – in so many global equity markets. The Japanese market is one that is worth watching closely.

So how do you participate in the upside for off shore markets? Whilst it is now becoming easier to invest directly in overseas markets it is not necessarily the best way for the average investor. There are however numerous managed funds that specialise in Japanese equities, other major markets and also the so called “emerging markets”. These are higher risk, non-western markets but ones where exciting gains can be achieved using sound fund managers.

Enjoy the ride.

Tom Scollon
Editor