Wealth Building Lessons

Japan’s economy has been dormant for the most of the past two decades but is on the rebound in a big way. It’s the second largest economy in the world and has the third largest stock market after the London Stock Exchange.

Investors have been shying away from Japanese investments in favor of the stronger US economy. This of course is changing rapidly as the US moves closer to a recession and investors are looking to pocket their profits and invest elsewhere.

The last quarter saw Japan’s largest companies increase capital spending by 16.8% compared to the previous 12 months. Furthermore, corporate profits grew for the 18th straight quarter, extending the longest streak of growth in 36 years. Japan also has some of the world’s cheapest stocks where equities are trading at roughly 1.5 times price-to-book value ratio, or nearly a 35% discount to the MSCI World Index and a 50% discount to U.S. stocks. On top of that, Japanese companies are beginning to boost dividend payouts.

The only cloud on the ever-so brighter Japanese investment horizon is the fact that consumer spending is still dismal. With 55% of the Japanese economy consumed by consumer spending, this “small” fact becomes quite critical. However, this may change in the near future as we see positive movements in almost all areas of the Japanese economy.

Right now, the yen is extremely cheap, smaller company stocks are grossly undervalued, large companies are experiencing increased profits and the pathetic real estate market is finally looking to rebound after a 17 year hiatus!! The Nikkei also remains more than 50% off its all-time high in 1990 unlike its international equivalents such as the Dow.

So, how can you take advantage of this upcoming economic upswing?

Well, my favorite investment is Japanese Real Estate and Everbank is offering a no-risk REIT CD which I consider one of the safest investments around. Morgan Stanley has been buying Japanese Commercial real estate for the past year and it just announced the purchase of 13 hotels. But if you don’t have the appetite for real estate or you missed the deadline to invest, Japanese stocks are the next logical step.

Japanese ETFs can prove to be a powerful yet low risk alternative to direct stock investment. ETFs are excellent investment options for investors that wish to diversify within a narrow asset class (e.g., a single foreign country or industry sector) and I think an ETF that represents Japanese Small Cap stocks like JSC is an easy and cost efficient way to invest in this sector. Small Caps are undervalued and so is the yen. Right now looks like a great time to get in.

Not only should the small cap stocks rise, but the japanese carry trade should eventually unwind too. Whenever that happens, it’ll be icing on the cake!

Related Books:

1. The Little Book of Value Investing

2. Crash Proof: How to Profit From the Coming Economic Collapse

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