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?