China & India vs. Japan: The
Best Place to Put Your Capital

By Wednesday, April 4, 2012

gross domestic productMaking money in Japanese stocks continues to be a battle. Since the benchmark Nikkei 225 peaked in 1990 at just below 39,000, the price chart showed multiple failures to halt the downside trend. From 1992 to 2000, Japan tried to recover from its recession, but failed.

The Nikkei 225 failed on five attempts to hold above 20,000 during this time. There was another attempt at 20,000 in 2007, but, again, it was a failure. The index is currently hovering at 10,000, down about 75% from its peak 22 years ago and investors clearly are not pleased.

Japanese stocks rallied in early 2011, but then the country was hit by the massive tsunami that not only killed thousands, but also delivered horrendous damage to buildings and the infrastructure, which to this day is still being rebuilt, albeit delayed by the radiation leakage.

The country continues to face struggles with its gross domestic product (GDP). In the fourth quarter of 2011, Japan’s GDP grew at a muted 0.6%, which is well below its historical average annual GDP growth rate of 2.15% from 1981 to 2011. Goldman Sachs estimates that Japan’s GDP will expand by 1.9% in 2012. The Organisation for Economic Co-operation and Development pegs Japan’s GDP growth at 2.0% in 2012, but has it declining to 1.6% in 2013.

At this point, there is minimal hope for Japan, as there are much better regions for investment opportunities globally, including China, India, and Latin America.

So, while Japan has faltered over the past three decades, China has used the opportunity to put its massive cheap labor workforce to use and created colossal manufacturing capacity for the world’s manufacturers looking for cheap labor and lower cost to produce goods.

China’s GDP leapfrogged ahead of Japan’s.

China’s mega-power economic GDP engine is showing some stalling, but the growth in the country continues to be well ahead of that of the rest of the G7 countries, as I discussed in Why the Great Wall of China’s Still Standing.

For 2012, China’s GDP is estimated to slow marginally to 8.6% from the previous 9.2%%, according to Goldman Sachs. This is impressive GDP growth compared to the industrialized world.

However, there are those who are positive towards Japan. Famed billionaire and investment guru Warren Buffett said the weakness in Japanese stocks provides a buying opportunity.

I’m just not that convinced. There are investment opportunities in Japan, but there is more money to be made elsewhere.

But if you really want some money in Japan, I suggest careful planning.

Several of the key Japanese banks, such as Mitsubishi UFJ Financial Group, Inc. (NYSE/MTU) and Sumitomo Mitsui Financial Group, Inc. (NYSE/SMFG), are interesting bank plays.

Other than the banks, you want to look at infrastructure stocks; not only in Japan, but also global companies operating in the U.S., such as Jacobs Engineering Group Inc. (NYSE/JEC) and Fluor Corporation (NYSE/FLR).

The bottom line is that Japan remains a strong viable economic power, but you need to look to the emerging powers in China and India as better alternatives for above-average returns.


About the Author | Browse George Leong's Articles

George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »

Sep. 2, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.71%
10-year U.S. Treasury Yield 2.14%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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