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financial markets in Japan

Friday 11 March, 2011

It’s not without huge irony that’s not lost on me that it’s today that I post this on the day of 1 of Japan’s worst natural disasters.  I submit this today simply to inform people about a country which I think gets far too little press as 1 of the largest economies in the world.  Anyway, here’s my report on an event I attended a couple of weeks ago WHERE TO INVEST IN JAPAN IN 2011 which was sponsored by the Japan America Society featuring Dave Baeckelandt of  Segall Bryant & Hamil, Drew Edwards of Advisory Research Inc., & Nick Ronalds of FIA Asia. Here’s what they presented:  Where_to_Invest_in_Japan_2011 & Dave Baeckelandt expanded upon his presentation a bit here Baeckelandt_Invest Japan Talk 2011 Feb 24 . Ken G Kabira moderated the panel, which reconvened most of the principals I wrote about a couple of years ago here .

You can check out the presentations for most of what was said.  I’ll focus on Q&A here that’s not included in the presentations.

  • what are value stocks that become growth stocks changes quarterly
  • if you believe in leveraging emerging market’s growth, Japan gains access to them at better valuations, i.e. Japan is the largest trading partner with China, Malaysia, Indonesia, etc.  Japan’s margins are only 2.9% on domestic businesses, but 5.6% in Asia vs. 4.8% in the US.  Japan also leads the US, Germany, & the world in investment in R&D/GDP with a positive patent income balance since 2003.  It’s not losing it’s competitive advantage vs. these competitors because only 28% compete directly against products from these countries.
  • if the number of pages of information is any indication, there is more disclosure in Japan than in the US.  Starbucks IPO generated 50 pages of legalese in the US & 80 pages of a more detailed prospectus in Japan, including the names & addresses of shareholders.  This was helpful in evaluating a gambling machine opportunity which didn’t look as good after perusing some shady investors involved.  Comparing risk factors is still difficult despite tons of information available from industry associations.
  • private equity has been organized in Japan since the 1700’s when family organizations lent to help cash flow.  Collective investors serve as investor groups that invest in everything.  Conglomerates provide seed capital for some companies.  Keep an eye on Nomura & Carl Kay for more info.
  • Shinsei Bank provided the biggest private equity story of a distressed company that was acquired by foreign investors which created a backlash when it was flipped for a profit.  The next 10 years will be different from the last 10, exampled by Nippon Steel’s merger with Sumitomo, which will squeeze redundancies in a Japanese way.  Now that we’re in the 3rd generation of succession after World War II, we could see a wave of mergers.
  • Toyota is in it’s own interplanetary galaxy & has a corporate culture different from that of Honda.  Accidents happen even @ Toyota & they did get some bad PR advice, but their ability to learn is a positive.  Sony had a similar problem in growing so big so quickly, but was different when they failed to combine their content with technology when combating Apple & Samsung, which now outsells all Japanese electronics companies combined.
  • Acquiring innovation (& R&D) is important in M&A, but you have to question it’s ROI.
  • The CFO from Molex chimed in that while Japan’s value is now in hard assets & not as much in it’s brands, the market values on Chinese companies are based more than anything on their future prospects.
  • It’s possible to bump up valuations by listing on other exchanges, but governments are taking a look @ this.
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