Active Investing in Japan

* Nikkei 225 Stock Average: -194.29 (-1.1%) to 17,963.64; First session in six below 18,000, three-week intra-day low below 17,900
* Nikkei 225 futures Osaka: -210 (-1.2%) to 17,970, Singapore (SGX) 17,965, Chicago (CME) 7/20 — 17,950
* TOPIX: -18.88 (-1.1%) to 1,757.29; Advancers 233 x decliners 1,430 (unchanged 67), New highs 30 x new lows 164; 28/33 sectors posted losses
* Jasdaq: -0.65 (-0.82%) to 78.42
* Yen strengthens 1.15% against US$ to 121 on subprime mortgage-related concerns, 1.5 month high for the yen
Broad selling and weakness, especially in smaller caps, real estate and non-bank financial stocks.

nikkei 225

Recent USAA market commentary on emerging markets highlights the outperformance of BRICs [Brazil, Russia, India and China] equities in the four-year period of 2003 – 2006. Take a look at the numbers, plus we’ve crunched the four-year average annual return for the Nikkei 225 as well.

BRICs: 49.9%
MSCI Emerging Markets Index (inc. BRICs): 38.2%
MSCI EAFE Index: 24.4%
Nikkei 225 Stock Average: 18.5%
S&P 500: 14.7%

The Nikkei 225 returned 5.3% in 2006, 40% in 2005, 6.1% in 2004 and 22.5% in 2003. Based on the trend, 2007 should be a year of double-digit gains … it certainly isn’t at this point!


nikkei 225

The WSJ.com ASIALINKS alert excerpts a piece on earnings guidance, which contains interesting statistics:

Between 2001 and 2006, Standard & Poor’s 500 companies that issued guidance beat analysts’ expectations 65% of the time, while companies that didn’t issue guidance beat them 63% of the time, according to a recent report from Thomson Financial.

It can be tough for individual investors of those firms that report earnings and comment on current and future quarter (year) guidance. An earnings beat is almost meaningless if guidance for the next quarter or for the year is cut. However, an earnings miss can be overlooked if there is raised guidance and sometimes if there are merely optimistic comments by executives, such as “margins are seen improving.” Guidance certainly leads to short-term volatility, favoring traders and potentially hurting long-term investors if they are compelled to reduce/exit positions. However, at least with Reg FD there is a more level playing field, although not always, as there was a recent case involving Office Depot in which its IR apparently tipped off analysts of coming weakness, sending the stock lower, before individual investors ever knew. Not cool!