Is this a good time to invest in Japan, particularly in Japanese stocks?
It almost seems like it’s unfair to ask such a question, considering the horrific events in that country on March 11, 2011. As if the 9.0 earthquake wasn’t enough, the tsunami just ravaged coastal areas in Northeast Japan and took far more lives than the quake itself. Additionally, the currently tenuous nuclear situation is a menacing threat on people in Japan.
Obviously, our hearts go out to the victims, families, and everyone coming to grips with these tragic events. Some of the video and stories I’ve come across are harrowing and very sad.
Having said this, the country’s stock market is actually still open for business. Japan’s economy is one of the world’s largest, and the country is home to many companies that are international powerhouses. The disasters have taken their toll on business, but things are still moving forward in many ways.
This gets me back to the opening question: Is this a good time to invest in Japan?
In the short-term, the eyes of the world are on the reactors and the battle to prevent further disaster. However, taking a long-term view, this might be a good time to consider Japan – based on data as of this writing.
Now, I’m not an investment advisor, so take this as just the plain ole Squirreler digging up some data. This data I find compelling is that of the NIKKEI 225, which is based on the Japanese stock market. Here are closing prices of this index at key points early this year, including recently:
January 4 (1st trading day of 2011): 10,398.10
March 10 (day before disaster): 10,434.38
March 11 (date of disaster): 10,254.43
March 14 (next trading day): 9,620. 49
March 15: 8,605.15
March 16: 9,093.72
March 17: 8,962.67
As you can see, prices from the beginning of 2010 until right before the disaster were fairly consistent, above 10,000. Then, the week after the earthquake and Tsunami, prices plummeted.
Looking at the numbers, the percentage decrease from March 11 to March 17 was 14.1%.
A decrease of 14.1% in such a short period of time is quite significant.
This is why I think that from a long-term perspective, investing in Japan may seems now seems intriguing. When markets fall so quickly, buying opportunities can emerge. Overreactions do occur in markets.
Of course, under-reactions can occur as well. But I look at historical stock returns in our market, and when prices have plummeted, they have bounced back. Even in Japan’s market, which is not nearly what it was over 20 years ago, larger drops are eventually followed by some level of bounce back. Even if not to prior highs, they’re still bounce backs.
Plus, Japan has a history of resilience. The way the country developed into one of the largest economies in the world, despite having over 100 million people crammed into a land mass the size of the state of California, shows something. One can also look at success of Japanese automakers in overtaking ours here in the U.S.
Like in most markets, it’s hard to say if anybody really knows what’s going to happen. It would be great to predict the future, and predictions at this point are just educated guesses. That said, there are compelling signs pointing to a potential long-term opportunity.
What do you think?
Do you think this might be an opportunity to make a long-term value investment?
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It makes sense what you’re saying. Alot of countries are going through turmoil these days and it is an opportunity to make money. I once read a quote on reddit that went something like this “buy when there is blood on the streets”.
-Ravi G.
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Ravi – I have a lot of compassion for the victims of this situation, so it’s a conflict for me to also view this as a potential buying opportunity. That said, it’s worth considering, as I’m sure Japanese investors might be deliberating the same exact thing.
It may be a good time to invest, but do keep in mind Japan’s had a long recession (20) years and they are yet to recover.
But as you say a 14% drop is quite significant. If you aren’t sure what company to pick, invest in a Japan ETF (EWJ).
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Yes, Japan has had a very long, protracted period of less than stellar stock returns. Their market was much, much higher 20 years ago. It’s declined significantly since then, and I don’t have a reason to think that valuations will increase to those levels.
However, the 14% decline is pretty steep. Things may not be stable there for a while, but as a long-term play, it’s worth at least giving consideration to Japan as a potential value investment. Good suggestion on investment vehicle, by the way.
It does seem like the market got too far into a “doom & gloom” mindset in the past few days.
I would only after several successful rounds of easing that make serious dents to the rapidly appreciating Yen.
With the USDJPY at 81-82, and debt:GDP at 2:1, there needs to be some serious liquidity infusions to avoid bankruptcy. The worst part about it is that a strong yen is definitely not helping exports, which in many ways is exactly what Japan needs to push along right now.
Basically, only if BoJ starts going for extremely loose monetary policy. They have very serious liquidity issues resulting from a very long history of big spending government. As a side note: it’s a shame the US will soon be giving them a run for their money.
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I think it WILL be a good time to invest in Japan in a few weeks or months. I was reading today that investors plowed almost $1billion into Japanese funds this past week. Once all of the volatility dies down a bit, I think there will be investment opportunities as the country rebuilds.
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[...] is reminding us of what all those investment gurus keep telling us. BUY LOW. Is it a good time to invest in Japan? See, this is why a lot of people don’t do it..too risky but he’s right, it may indeed [...]
Good analysis, Squirrelers. For a short term investment, it would be worthwhile. The Japanese work ethic combined with the need to rebuild might give their economy a boost. Longer term, I think the aging demographics has a negative effect.
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I looked for some Japanese stocks last week, but I didn’t find what I wanted. I will take another look on Monday morning.
I also feel for the Japanese people in this time of emergency. But, I think investing in Japanese stocks could have a dual positive effect. It could help to prop up the Nikkei and return a profit.
This is what made Sir John Templeton rich. After WWII, he bought shares of every Japanese stock that traded for under $1. This single bet made him the greatest international stock picker of the last century.
It’s sad to say, but I think that it is. Even Warren Buffett has said so. I know that some might have moral dilemmas about profiting from a tragedy, but Japan also needs our investment dollars if they are to rebuild and survive.
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[...] Wise Squirrel presents Is This a Good Time to Invest in Japan? posted at Squirrelers, saying, “Given the recent unfortunate turn of events in Japan, it may [...]
it may a good time but I suggest to wait and watch first to see whether the Japan can really accelerate its economy growth after the disaster. In short word, we need the confirmation.
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