When it comes to the market, being a contrarian is often a polite way of saying "I'm smarter than the crowd."
This morning, Jonathan Clements' column at WSJ.com came with an interesting title - "A Contrarian View of Japanese Stocks: Now Is a Good Time to Buy Them".
But here's possibly the biggest reason to buy: Tokyo has burned so many investors that many still recoil at the idea of investing there. "Everybody wants to buy something that isn't too high," says Nelson Lam, an investment adviser in Lake Oswego, Ore. "But when you bring up Japan, nobody wants it, because it's been down so long."..."I'm not suggesting people put all their money in Japan," says Eric Kobren, executive editor of FundsNet Insight, a newsletter in Wellesley Hills, Mass. "But I think getting into a diversified international fund with significant Japanese exposure is a good idea."...Mr. Kobren takes all this as a good sign. He argues that fund managers' scorn for Japan could be a great contrary indicator. As confidence in Japan's economic and stock-market recovery grows, money managers may rush back into the market, driving up share prices.
I was sort of stumped by the article. I thought everyone was already in Japan. Isn't that why it's been going up? Back in the summer, clients were given the "it's a breakout that they're going to try to buy" alert on the monthly chart.
I haven't thought about it much ever since because we're long with a stop in place, but given the piece in the newspaper, I decided to search around, because I thought I had read all sorts of bullish articles over the past few months.
April 26, 2004
European Pensions & Investment News article
But, while respondents are cautious about what can be achieved in the equity market as a whole, they are bullish on specific markets. Our survey asked managers to predict the performance of the European, UK, US, Japanese, Asian and emerging markets over the next six months and respondents were especially optimistic about the Japanese arena. In our previous January survey, investors predicted that Japanese stocks would return 6.82% over the next six months but in the space of just three months those forecasts have been revised sharply upwards to 8.92%.
"The time is ripe for investors to consider allocating to the Japanese equity market again," says Joji Maki, head of Japanese equities at Baring Asset Management in Tokyo.
"The reluctance of Japanese companies to spend money on capital goods or hiring staff has been one of the main components of the country’s protracted economic slump, but we are now starting to see capital spending levels increasing again. In fact, growing levels of capital spending and exports have become the drivers of the modest recovery in Japan."
September 13, 2005
Merrill Lynch press release
Fund Managers Buy Into Japanese Recovery
This month, a net 37 percent of fund managers rank Japan No. 1 for company profits. More than a quarter of managers describe Japanese equities as the most undervalued region and a net 46 percent of asset-allocators say they are overweight the country.
"Investors' preference for Japanese rather than U.S. equities is one of the most extreme we've seen," said David Bowers, chief Global Investment Strategist at Merrill Lynch. "Because this view has historically been associated with expectations of higher inflation, it could come under pressure if a faltering global economy starts to undermine companies' ability to pass on higher costs."
November 14, 2005
CityWire article
FoF managers are long-term Japanese bulls
Respondents to this month’s Citywire Fund of Funds Survey, which looks at the investments and views of multi-managers running less than £4.5 billion of assets, were almost universally positive on Japan’s prospects. More than 80% said they believed a long-term bull market had now emerged in Japan. The rest of the respondents were still undecided but no one was negative...Insight's fund of funds manager Patrick Armstrong says: 'The combination of political reform and an end to deflation are the most compelling reasons to be bullish on Japan. An increase in inflation could see Japanese pensions, which are dramatically underweight in equities, start to buy. Our concern is that everyone is bullish on Japan and the prospect of following the herd always makes us cautious.'
All the same, just less than half of the respondents increased their exposure to Japan during the month and none were sellers. Japanese funds bought during the month included Legg Mason Japan and Morant Wright Japan.
I guess the moral of the story here is that contrarianism is relative to when you first heard the news and when it's gone up enough as to feel "safe" to report on it.
