From grayzhu@panix.com Mon May 30 15:12:10 1994
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From: "Gray Zhu, 800-289-2498, 212-279-6700" <grayzhu@panix.com>
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Subject: IC940530:japan funds - by Jianping Zheng
To: jiang@ifcss.org
Date: Mon, 30 May 1994 16:10:04 -0400 (EDT)
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>From: Jianping.Zheng@comlab.ox.ac.uk
>Subject: About Japan, etc.

Dear Gray,

Thank you very much for your effort to set up this investment club, in
which I believe most of us will benefit from ideas and make friends.

Included is some idea about invest in Japan, which I wrote after
reading your recent issue. Hope it may help.

I understand that the regulations may prevent you from recommending
the detailed stock-picking. Could I suggest that you add a little
about the discussion of general market conditions? This may be a more
important factor because when the market is in good shape, there are
general more winner than loser, while on the other hand, the small
investors and beginners are actually swiming against the water and may
easily fail. At least I believe this is still not the nice time to dip
into the market and readers of your column should be given the clear
warning signal when they are itching to do some jump.

The saying is "listen to the market". We should!

Regards,

Jianping from Oxford

======== Included: About Japan ========
About investment in Japan
-------------------------

The following is something I dig out from my mind. The data provided
may not be accurate and you may need other sources to verify these.

Investment in Japanese Stock Exchanges picked up the fever from the
turn of 1994. In the first quarter, the funds in Japan were up in
average of about 10%.

Economically, Japan is still in deep recession. Starting from 1989
when the economic bubble was pricked, this recession is now in the
fourth consecutive year and broadly speaking, the situation is in the
worst. However, there are increasingly many more bulls speculating
that it is bottoming up, given the global condition that US is out of
recession, europe is recovering, and source east Asia is booming.

Japan may need fundamental change of economic structures to boost its
economy.  Their people remember clearly the picture that in economic
booming, money buys money and assets and the bubble was eventually
inflated to unsustainable stage. Then the bubble was pricked and lots
of companies went bankruptcy.  Their central bank is still afraid to
re-enter that circle and therefore reluctant to issue new money which
the industries is starving for. However, it is a general consensus
that the change is coming and the tenure of their bank governor is due
this October, which may increase the possibility of a quick change in
monetary policy, which cause the revival of economy.

Politically, they have got a very weak government at the moment. After
LDP finished their 38 years governing, the new leaders are always in
trouble and the current leader Mr.Hata may become the shortest ever
primer minister, broken the record set out at 57 days before. The
market believes that this factor has already been discounted and his
future resignation may bring less surprise. Furthermore, generally it
is agreed that this series of political changes will eventually bring
a opener and cleaner Japan, which will certainly do good to their
economy in the long term.

Japan has serious diplomatic row with USA and even europe, because of
its huge trade surplus. The situation is improving, though. And most
people believe they will gradually open their door and allow more
imports. The recent development in Japan and US talk and Mr. Hata's
europe tour may proof that these guesses are not too optimistic.

In the market, Japanese shares are traded in an average PE of over 70.
This is far too expensive due to the conventional standard. And their
companies are mean in that they distribute very little dividend.
However, some experts argue that this is not the market that can be
measured in the way we measure western markets, and some indicators
have already shown that their shares are among the cheapest. Due to
their special industrial structure, the hovering PEs will come down
very quickly when the recovery starts. And even at the moment, the
average PE does not reflect the fact that some of their companies are
traded at around PE=40 while the others at around PE=100, an uneven
picture.  At least now the Nikkei is only around 50-60% of its peak
and there has a long way to go when momentum picks up.

As Wall street's saying: Buy at rumor and sell at news. Japan might be
a place to gamble while Hong Kong might be the place to exit. At least
a prediction says that the Nikkei may reach 25000 at year end and in
short term Hong Kong may not be so optimistic.

Still, the risks are there. Japan's recovery may proof not as close
and even if it is, it may not be as fast as expected. At the moment,
Japanese investors are still net seller while foreigners (mostly
western countries) are supporting the markets. The market situations
may not change greatly unless Japanese investors are willing to buy
more. And they may need a decade to recover from the wound of this
worst recession.

Also, buying US mutual fund is different from buying Japanese market.
Although there is a correlation, a fund may underperform although the
markets there are improving. The situation in US markets is still in
trouble and when investors can find good value at home, they may be
reluctant to put their money in exotic overseas, in which case the
demand of these funds may be down, and so will be the price.

Having said all these, my suggestion is that Japan might be a place to
consider but, at least, do not invest the money for your food.

