Blogs & Comment

Japanese bargains and stimulus

Ive recently come across additional material that appears to strengthen the case for increasing exposure to Japanese stocks (and lends support to the decision to purchase units in the Claymore Japan Fundamental Index ETFyesterday morning, according to the plan mentioned in my last post). One point refers to bargain prices and the other draws attention to the increasing probability the Japanese government will monetarize some of its huge debt load.
Bargain prices
After the sharp plunge on Tuesday, Japanese stocks were trading just 20% above the low reached during the past financial crisis and recession, qualifying them as one of the few asset classes (along with U.S. housing) that hasnt had a major run-up to high valuations. Indeed, the Tokyo Stock Exchange index was trading slightly under book value at one point. By comparison global stock markets currently are trading close to twice book value.
Policy stimulus
The pressure to monetarize government debt (currently twice GDP), was building prior to the natural disaster and nuclear accident. Now the pressure will be even greater given the requirement to finance a rebuilding effort. The result should be some noteworthy policy stimulus and an extended period of yen depreciation that should boost exports. The risk of a decline in the yen, by the way, was one reason for going with the currency-hedged Claymore ETF (besides the convenience).