After a two-decade bear market, now is the time to buy and hold Japanese stocks, Marc Faber, publisher of the Gloom, Boom & Doom report, said.
Faber, who is credited with predicting the 1987 Black Monday stock market crash, said the Japanese government will be forced to print money to monetize the country’s public debt, the developed world’s biggest. That will cause the yen to weaken, helping boost earnings for the nation’s exporters and buoying stock prices.
Faber joins other bullish investors on Japan, such as Goldman Sachs Group Inc. and David Herro of Oakmark International Fund, in countering skepticism about Japan earned through four recessions and dismal stock returns after the 1990 crash of the bubble economy. The Nikkei 225 Stock Average has fallen about 73 percent since it peaked in December 1989.
“If I had to make a bet for the next ten years in terms of equity markets, I would seriously consider a very strong weighting here in Japan,” Faber said yesterday at the CLSA Asia-Pacific Markets’ annual conference in Tokyo. “Once the debt market starts to go down, the yen will begin to weaken and that will lift equity prices. I would buy equities at the present time.”
Nikkei’s Rise and Fall
Japanese stocks rose today, with the Nikkei gaining 1.6 percent, set for its biggest gain since Feb. 2. The index has risen 5.1 percent so far this year, reversing last year’s 3 percent decline.
Investors have had reason to be wary. Japan’s rebound from the crash after the 2008 bankruptcy of Lehman Brothers Holdings Inc. has also lagged behind that of every other major market. The Nikkei has gained about 52 percent since its low in March 2009, while in the U.S. the Standard & Poor’s 500 Index has surged about 97 percent.
Moody’s Investors Service last month joined Standard & Poor’s in lowering Japan’s debt outlook. Moody’s cut its rating to negative from stable, saying political gridlock will hamper Prime Minister Naoto Kan’s ability to cut the debt, which has risen to about twice the country’s gross domestic product.
“If I look at the next five to ten years, the interest payments on the government debt in Japan and the fiscal deficits will become very burdensome and that will necessitate monetization,” Faber said. “That will bring about a huge shift of money out of cash and bonds into equities.”
Faber isn’t the only one recommending Japan. Oakmark’s Herro said last month it was time to buy Japanese shares as they “are a steal” considering that companies are exporting more to China and have started to pay bigger dividends. Goldman strategist Kathy Matsui said in December the Topix is likely to surge 20 percent in the first six months of this year as a retreating yen boosts profits for exporters.
Faber has a mixed record for predictions. In March 2007, the 65 year-old investor said the Standard & Poor’s 500 Index was more likely to fall than rise because the threats of faster inflation and slower growth persisted. The S&P 500 then climbed 10 percent to a record 1,565.15 seven months later, ending the year up 3.5 percent.
Faber said in an interview with Bloomberg Television on March 9, 2009, that it was “very difficult to see a scenario where you wouldn’t make any money” owning stocks over the next 10 years, while also warning the S&P 500 might lose 26 percent before the bear market ended.
The benchmark gauge for American equities began its biggest advance in five decades that day, climbing from 676.53 to 1,295.02 on Jan. 18, 2011.
Faber said on Sept. 17, two days after Japan’s government intervened in foreign-exchange markets for the first time since 2004 to weaken the yen, that the nation’s stock prices would rise in the next 12 months as the yen depreciates.
The Topix has climbed 13 percent since then, while Japan’s currency has appreciated about 3.9 percent against the dollar since the government’s intervention on Sept. 15. The yen is trading near its strongest level in 15 years versus the U.S. currency.
Japan has been in a “20 year bear market,” Faber said. “Statistically speaking, after a 20 year bear market, if it continues to go down, then it’s game over.”
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