Active Investing in Japan

Japanese bank stocks are grabbing more headlines these days as they continue to scavenge around wounded U.S. i-banks. Nomura (8604) (NMR: 7.60 +2.01%) added some more Lehman (LEH: 0.00 N/A) human capital (in Europe/ME after snagging its Asian ops) and Sumitomo Mitsui FG (8316) (SMFJY.PK) is said to be considering making an investment in Goldman (GS: 173.57 -0.79%). Investors responded particularly favorably to Nomura’s efforts to become global-class, pushing the stock up 15% to ¥1,505 over the last two sessions. No doubt this is a great opportunity, but the challenge will be achieving synergies and profit accretion (Update: see FT commentary in How to say ‘no’ – er, ‘yes’ – in Japanese and Nomura creates $1bn pool for Lehman staff). The Nikkei managed a 0.2% gain after being down nearly 2% intraday. TOPIX ended fractionally lower.

In light of Japanese stocks going ex-dividend (interim) tomorrow, below is a ranking of Japanese stocks with ADRs based on ordinary share dividend yield (above 2.5%).* The Japanese benchmark 10-year JGB was last at 1.49%.

Nissan (7201) (NSANY: 0.00 0.00%) — 4.98%
Makita (6586) (MKTAY: 33.678 -0.80%) — 4.05%
NTT DoCoMo (9437) (DCM: 15.50 +0.52%) — 2.93%
Toyota (7203) (TM: 78.10 +1.44%) — 2.91%
Mitsui (8031) (MITSY: 337.11 -2.89%) — 2.85%
Canon (7751) (CAJ: 46.06 +2.70%) — 2.61%
Honda (7267) (HMC: 36.44 -0.44%) — 2.51%

*Dividend yields applicable to ordinary shares and based on Sept. 24, 2008 market close in Japan. Source: Yahoo! Finance Japan.

FD: No position in any stocks mentioned.

It goes without saying that I am extremely skeptical of the Paulson bailout scheme under the funny money regime. Good for Nomura (NMR: 7.60 +2.01%) and Mitsubishi UFJ (MTU: 5.20 -0.19%) for being able to get in on the scavenging, the former, which is said to be buying Lehman’s Asia franchise and the latter which is reported to be taking up to a 20% stake in Morgan Stanley (MS: 29.595 -1.05%). (See clips below from MarketWatch). That said, if the so-called relief rally and bogus bail-out rally come to an abrupt end today in the USA — how can you eliminate short-selling and get excited about a short-lived rally — then expect some profit-taking in Tokyo (from Wednesday, when the TSE reopens after the Autumnal equinox holiday). Beware bottom-fishing with iShares MSCI Japan Index ETF (EWJ: 10.26 -0.39%).

clipped from www.marketwatch.com Bailout rally loses steam Stocks dip as details sink in WALL STREET in CRISIS Another Sunday night bombshell Japan’s MUFG buying up to 20% of Morgan Stanley Global financials Nomura buys Lehman’s Asia franchise Japanese giant snaps up equities and investment-banking operations across Asia, but deal doesn’t include any of Lehman’s balance sheet, according to report.

Wilbur Ross made an interesting comment at an Invesco seminar in Tokyo on Thursday, stating that Japan’s financial system has never been healthier — even (historically) compared to the U.S. No further details were provided by financial press coverage in Japanese, but it is fairly obvious that the Japanese were primarily (although marginal) customers of U.S. financial toxic waste products and not distributors or manufacturers of their own version of ABS and CDS gone wild.

Mr. Ross did mention the recent resurrection of pre-Glass-Steagall conditions in the U.S. He also reiterated that many more banks are poised to fail in the U.S. I believe he recently said up to 1,000 could fail and that he wouldn’t invest unless the conditions were right with government support. Can’t blame him.

So, are Japanese banks a screaming buy with so many of them trading less than book and seemingly having higher quality balance sheets … or do distressed U.S. banks represent the bigger prize? Maybe neither. Massive ongoing value trap in the former and massive ongoing value destruction in the latter.

clipped from jp.reuters.com 　［東京　１９日　ロイター］　破綻した企業への投資・買収で知られるＷＬロス・アンド・カンパニー会長兼ＣＥＯで、インベスコ・プライベート・エクイティ会長のウィルバー・ロス氏は、日本の金融システムについて「米国よりも、かつてないほど健全なものになっている」との見解を示した。

Merrill Lynch’s Global Fund Manager Survey for September unequivocally depicts further deterioration in sentiment towards fund allocation for Japanese stocks. The effects of a pullback in overseas capital — not to mention the control overseas investors wield in Tokyo trading — are already evident as the Nikkei fell to a new multi-year low Thursday.

By way of Kabushiki Shimbun, the Merrill survey results show that managers ‘over-weighting’ Japan fell to 16% from 22% in August, while those ‘under-weighting’ Japan increased to 39% from 34%. Furthermore, those expecting to ‘over-weight’ Japan in the next year dropped to 2% from 9% previously. No surprise that defensive stocks are favored.

Meanwhile, the ultimate, elusive value trap remains. The Japanese could do much to help themselves, but there’s still no real indication of forthcoming action.

clipped from charge.biz.yahoo.co.jp 日本株の弱気が増加

So much for enjoying the latter part of the three-day weekend in Japan. The spectacular “Bloody Sunday” was followed by sell-off Monday in the global markets that were open, which in turn set up Japanese stocks for a heavy drop upon reopening Tuesday. The Nikkei 225 hit a 3-year-plus intra-day low of 11,551, going back to the Koizumi era, prior to his historic snap election securing support for Postal privatization. It’s hard to envision any kind of rebound at present. Maybe next week if the empty PM seat situation is resolved.

Meantime, the BoJ issues its rate policy decision Wednesday, but a change is unlikely and thus, as has long been the case, the focus will be on Gov. Shirakawa’s commentary. The yen meanwhile, has appreciated some against the dollar, last around $1/Y104, although still no indication of a revisit to < 100. In a hunt for some good news, how about equity dividend yields? The Nikkei 225 has a forward yield of 1.9% and Topix-1 is above 2.0%, compared to the benchmark 10-year JGB yielding just under 1.5%. Stocks go ex-dividend (for interim dividend) next Thursday. In the expectation of further selling, I’ll hold off another day or two before listing some of the highest yielding stocks that have ADRs listed with the NYSE/Nasdaq.

CNBC dubbed “Bloody Sunday” coincided with Keiro no hi (Respect for the Aged Day) in Japan and thus the Tokyo Exchange was closed. Stocks fell broadly across Asia for those exchanges that were open, including a loss of 4.1% in Taiwan and losses of 3.3% in Singapore and India. Mid-day stocks are falling even harder in Europe: down more than 5% in Paris and over 4% for most regional indices. Wall Street is said to be bracing for the market open.

Tokyo will likely sell-off equally as hard given the prevailing fear, uncertainty and the sizable influence overseas investors have on Tokyo trading. Bank stocks will obviously be under the most pressure, particularly Aozora (JP: 8304) and Mizuho FG (JP: 8411) (MFG: 4.21 -0.94%), both of which were listed among those with the largest unsecured loans to the now Chapt. 11 Lehman (LEH: 0.00 N/A).

clipped from charge.biz.yahoo.co.jp 「流血の日曜日」と報道＝金融危機で米メディア

The Nikkei has lost 3.5% in the first two trading sessions this September — more than erasing the month-end window dressing — and now sits at a five-month low. Initially not phasing stocks was the announced resignation of PM Fukuda, with commentary inside and out of Japan noting the rather muted reaction by investors and lack of selling. However, the yawner of a morning session turned into a bout of indigestion in the afternoon, with stocks falling heavily and the Nikkei 225 briefly dropping below 12,500. continue reading…