FREE KIC - NO. 31 APR / MAY 08
I have written three opinion pieces on
In my opinion piece of April ‘07 I wrote the following:
In conclusion my decision to
In order to implement the decision I have bought a Japanese exchange traded fund (ETF). This gives broad exposure to the overall market.
I have invested in
I have to admit that in the last year foreign investors both activist and
private equity have been rebuffed in all their attempts to bring about change.
In fact it appears that “traditional”
Steel Partners were involved in a hostile takeover bid and legal action with a company called Bulldog Sauce but in the end the legal action allowed Bulldog management to put in place a “poison pill”, an issue of new warrants to “friendly” shareholders that prevented Steel Partners from getting control of the company.
The success of Bulldog Sauce in getting rid of Steel Partners has resulted in the following observation from one commentator:
The government did not help sentiment by its own actions. TCI were prevented from taking a 20% stake in J-Power because it was deemed to be a “strategic” industry. Maquarie was prevented from taking control of Japan Airport Terminal again because it was deemed to be a strategic asset.
In other words the barriers to foreigners unlocking the value in those cheap companies has been put in place and so with the benefit of hindsight it now appears that I was premature in my decision to dip a toe in the Japanese market.
The chart below shows what happened to the value of Bulldog Sauce over this time:
In my second opinion piece on
Asahi Chemical’s results were released recently and I think they have once again shown that you should judge Japanese companies by the results they achieve rather than the forecasts they make.
Asahi Chemical results and forecasts:
This stagnation in profit indicates to me that Asahi Chemical is not a dynamic company and is therefore unlikely to be a great investment.
Unfortunately Asahi Chemical in my opinion is all too representative of Japanese companies in general.
This once again highlights the need for a catalyst to unlock value in the Japanese market because it is unlikely that existing management teams are likely to do it.
The current Prime Minister Fukuda has become incredibly unpopular. There were rumours of an early election but that may not happen. An election has to take place by September 2009. There is the possibility that the LDP could lose power in that and a more reformist DPJ could lead the next government.
I continue to believe that the cheapness of Japanese companies will attract foreign investors but it appears that hopes of quick progress in unlocking that value have been dashed by the legal system. I therefore have to conclude that I could be waiting a very long time before making decent returns on my Japanese Exchange Traded Fund (ETF) but I believe that the possibility of a new government might be worth waiting for and therefore I will hold on to this investment until the election is over.
Does anyone remember the Japan Premium? I certainly do because that was a time when financial commentators were constantly writing about problems in the Japanese banking system.
At one point in 1997 Japanese banks had to pay a substantial premium to borrow money compared to banks in the rest of the world.
The following is an extract from a San Francisco Federal Reserve paper on the subject:
The event leading to
the emergence of the
At that time there were headlines in the western press highlighting
falling Japanese property values, falling stock prices, bad debts of
potentially enormous size, insufficient capital to absorb those bad loans and
management that were trying to hide the true extent of the problem. In other
words a crisis of confidence! Sound familiar? Yes, the
The Japanese government eventually helped by providing additional capital and managed to convince the world that large Japanese banks would not be allowed to fail.
I wonder whether the rescue of Bear Sterns will be seen with hindsight as the time that the message was sent out that the financial system cannot be allowed to meltdown and in a number of years time the current crisis will just be like the Japan Premium...............a distant memory?
I wrote my first opinion piece for the website back in October ’05 and I have written one every month since then up until now.
On April 23rd my father in law died and I took some time off work. I have therefore written this opinion piece to cover two months.
I want to use this as an opportunity to pay tribute to my father in law, Tony Smith, because he was a great friend and he will be dearly missed (even though he was a Newcastle United fan!)