Archive for November, 2009
I have been visiting companies lately selling Shared Research services. As a result I have not been able to watch or trade the market daily. Which I guess is a shame because some short opportunities presented themselves in all their technical beauty. Topix slid to April levels while small caps saw Mothers dropping back to May numbers and Jasdaq trying stay above 45 (where it was back in June).
What is going on? I guess all the reasons given for the poor performance such as massive issuance by large caps who have access to capital, are valid ones (the issuance mentioned by a reader last week, thanks Diabolo). The last point makes me wonder how can a market this big be this shallow – but this is for strategists to answer.
The weak dollar hitting the exporters must be an important factor too. Obviously anyone getting their revenues in dollars can’t be happy. But why doesn’t the market take a view on recovery? Why does Japan seem to be singled out as a ’bad apple’?
I think Japan might be underperforming because the global markets are currently very speculative and driven by funny money. In such speculative markets people would be allocating to the hottest current performers with underperformance by ‘boring’ markets continuing, testing the patience of low conviction players, and creating the vacuum-like feeling, reinforced by currency, issuance and other marginal factors. In this case, we must consider two scenarios.
One Japan plays the catch-up closer to the year end or by March 2010 at the latest. That makes it a Buy, now or at some arbitrary point where the market starts looking like it is bottoming out for those technically inclined.
Two Japan continues to linger but the rest of the world starts correcting driven by underlying economic weakness. The talking heads may try to convince us that the recovery is sustainable. Surely they would. If we are indeed heading for a double dip or something worse, then Japan would outperform as we have done quite a bit of correcting already.
The conclusion? It seems that Japan is a Buy no matter what, even if possibly only in a relative sense.
I have been radio silent for the past few days due to an overload typical for any startup. In addition, frankly, I didn’t feel I had much to say. The market looked and felt strange. I had no idea which way we go.
Meanwhile, it seems that the Japanese small caps decided that already. The declines have been nothing short of unbelievable. The short lived biotech boom now looks like a biotech bust. Other names, especially in Mothers index are taking similar beating. What is going on? I got this question from a friend and I was sort of wondering myslef. We can probably come up with more than few explanations, like the wave of recent issuance and uncler economic stance of the new government. Another argument could be simply, the hot air is not a good support for sustained flight.
I looked at the top 10 Mothers lagging movers today. I thought I would comment on one or two, but there were quite a few that you might find interesting, so I thought it better to list them:
- Gree (3632) – you might recognize this from a post last month (Greeful - pops to new window)
- Access (4813)
- Japan Wind Development (2766)
- V-Technology (7717)
- Sosei (4565)
- CanBas (4575)
- FreeBit (3843)
- OncoTherapy (4564)
There’s both biotech/pharma and tech in there. Is the small cap market losing its appetite for risk, or have some of these names flown too close to the sun? Pull up the charts, what do you think?
I have not been following the cement stocks recently and they were never in my coverage so just a casual observation – both Sumitomo Osaka Cement (5232) and Taiheyo Cement (5233) look cheap. I emphasize “look” because they look attractive chart-wise. Valuations are harder to judge based just on the headline numbers. However, it would seem to me that on 0.5x-0.6x last year’s book, the market is pricing in losses of 40-60 billion yen for each firm. The consensus seems to be for much better numbers. Global peers are substantially more expensive. Of course, now that Japan is scrapping its long-cherished dam construction, maybe a discount is perceived to be justified. Or, is it just one of those situations where being unsexy is punished heavier in Japan than elsewhere? A.k.a. “Japan discount”…
Disclaimer(as suggested by a friend): I bought a little bit of both stocks as a short term speculative position (as are most of the stocks I am trading these days). I do not invite anyone to buy or sell these or any other securities. Please never take anything I write as an attempt to influence anybody’s investment decisions. I may or may not own some of the stocks I write about.
