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| Skousen: "Wisdom' from Japan |
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| Wednesday, 17 September 2008 | |
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In his top notch trading service, The Hedge Fund Trader Alert, he says, “Surveying the landscape in Japan, two things are perfectly clear; the market and the currency here are both extremely cheap.” “The Nikkei 225 reached 40,000 back in 1989. Today, almost 20 years later, it is around 12,600 -- more than two-thirds lower. “The yen also is cheap, due in part to ultra-low interest rates. Many international investors are playing a dangerous game, borrowing money in yen at low rates and lending it out in other currencies at higher rates in order to earn ‘the spread.’ “This works fine until the yen begins to surge. Then there will be massive buying of the Japanese currency, as traders rush to cover their bets. “That day is not here yet. But when it arrives, we may see one of the most dramatic currency surges ever witnessed in modern financial markets. “A jump in the yen, however, would not be good for Japan’s largest companies. Most of them -- such as Toyota, Honda, Sony, Canon and Mitsubishi -- are major exporters. “A stronger yen would squeeze their margins or force them to raise prices. Neither is good. But it would not hurt the earnings prospects of smaller domestic companies that service these large companies or sell products mostly inside Japan. “That’s why now is an excellent time to buy the WisdomTree Japan SmallCap Dividend Fund (NYSE: DFJ). This ETF holds almost 500 Japanese small-cap stocks, a sector that is hard for most Western investors to access. “As the name suggests, the fund doesn’t just buy the small-cap index but holds only those companies that are profitable enough to pay dividends to shareholders. However, dividends in Japanese stocks are quite low right now. The fund yields 1.44%. “I like this fund for several reasons. A single investment gives us broad diversification in Japanese small caps. “The ETF’s annual expenses are reasonable at just .58%. The assets are entirely denominated in Japanese yen, giving us plenty of currency appreciation potential. And Japanese small-caps stocks are among the most overlooked and undervalued around the globe.” |
Writing from Japan, while speaking at an economic conference,
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