The ultimate permabear and permabull agree on one thing – Japan is a buy. In an interview over the weekend Warren Buffett told reporters that Japan is a good value and should do well over the long-term. You can see the interview here:
David Rosenberg of Gluskin Sheff agrees. In this morning’s research note he explains the “Japan is cheap” thesis:
“LOOKING FOR VALUE? TRY JAPANESE STOCKS
This was true before the massive tsunami and earthquake, and just as true now ― yes, GDP is about to take at least a 2% hit but keep in mind that the Japanese stock market more than fully reflected that prospect at mid-week when it slid 20% in what was the worst decline over such a short time frame since the 1987 crash. Implied volatility on the Nikkei soared from 21 to 70 ― within striking distance of the 92 peak reached after Lehman collapsed. To show just how far the market went in a classic case of shooting first and asking questions later, at one point last week CDS spreads were priced such that Japan was viewed as a greater default risk than Mexico or even Panama. I mean, there is no doubt that Japan has a massive government debt loan (200% of GDP) and that is about to get even larger but 95% of that debt is held by the country’s own residents.
We are always wary of front covers, but Barron’s may well have this one pegged. Global markets are now priced at twice book value, double what it is in Japan. The weekend WSJ made the point that on a 10-year cyclically smoothed basis, the Nikkei is trading at a P/E multiple of 14.5x, which is about the cheapest the market has been in over 40 years. As the weekend WSJ points out, the Japanese and U.K. equity market capitalization levels are roughly the same and yet global mutual funds and ETFs have 25% less of their assets in Japan (Morningstar data).”
Source: Gluskin Sheff
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.