Sunday 7 february 7 07 /02 /Feb 23:47

It has been a while since I last updated my portfolio. My view of the market was bear since July and I never felt any confidence in increasing beta to my portfolio. Looking back it was a mistake but at the same time I was convinced the world was not going to recover that quickly from the recession.

I am still in that position and I believe a long agony is ahead of most developed market. The strong rebound was just the tree hiding the forest. Reforms in the banking sector around the world need to be implemented, governments need to increase taxes and decrease spending in order to bring their debt level back to more sustainable condition.

The long road ahead is going to be bumpy and growth will be sporadic to say the least. I am no Dr. Doom but I believe the world economy is not where it is supposed to be. For that reason I will change part of my portfolio decreasing weight of my commodities related stocks and adding more weight to defensive and domestic stocks.

It might sound risky if it happens that the recent pullback could be just some heavy profit taking from institutional. I would once again bet against the market. However, this time I believe fear is back in the market. Sovereign debts around the world are back in the headlines. Greece, Portugal, Ireland (all apt of the EU) are raising strong concerns regarding the EU ability to manage its own differences.

Here is the moves I will make at the end of the next trading session.

NAME

weight

Reasons

Kirin Holding

1,84%

Acquired by Suntory and Defensive

Yahoo Japan

2,00%

Internet play  getting more exposure

Chiyoda

2,00%

Construction play (government stimulus)

Aeon

2,00%

Defensive and domestic stock

Shin Etsu Chemical

1,00%

Tech is going to be leading the recovery

Shionogi

1,00%

Defensive and pharma is a booming sector

NEC Corp

1,00%

Tech is going to be leading the recovery

NTT Docomo

1,00%

Defensive and domestic stock

Tokyo Electric Power

1,00%

Defensive and domestic stock

Tokyo Gas

1,00%

Defensive and domestic stock

Mitsubishi Heavy Industries

-0,50%

Good nuclear play but too cyclical

Marubeni Corp

-0,90%

Comodities related stock

Toshiba Corp

-1,00%

Good nuclear and tech play but bad financing

TDK Corp

-1,00%

Some profit taking after the strong stock performance

Mitsui & Co

-1,09%

Comodities related stock

Japan Steel Works

-1,50%

Comodities related stock

Mitsui OSK Lines

-1,85%

Comodities related stock

Seven & I Holding

-2,00%

Defensive but Too much foreign exposure

Mitsubishi UFJ

-2,00%

Banks will struggle with reforms

Nomura Holding

-2,00%

Banks will struggle with reforms

By Olivier Levant - Posted in: My 30 Stocks Portfolio
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Friday 5 february 5 05 /02 /Feb 12:22

Asahi Glass just released its Q3 earning results yesterday. It is always difficult to judge if the performance was strong because Japanese companies do not give guidance for Q1 and Q3. However what the company has announced an upward revision to FY12/09 full year guidance, which implies Q4 sales of JPY328bn. The new Q4 sales expectations are not that impressive, which implies a strong performance in Q3.

In the details, the upward revision comes from 3 distinct factors:

  • Better than expected shipment of FDP glass
  • Stronger auto glass shipment
  • Higher prices in Europe due to strong demand of automobile, TV and computers.

On the other hand, the chemical department came up short of expectation and was the only disappointment of the quarter.

Other than the rebound of the glass sector in the last quarter the real positive for Asahi Glass (AGC) is its own numbers. AGC is expecting 15% area growth in the coming quarter, which is higher than its peers (Corning = 2-3% and Nippon Electric Glass = 10%). I can assume from those numbers that AGC has gained and will gain market shares, which is strongly positive for the company and the stock price.

The main contributor to AGC’s strong growth is the opening of Sharp’s start up Sakai since AGC supplies 40% of Sakai’s glass. Recently Sharp has released its Q3 results and announced that panel area growth will be up 70% QoQ, which comforts me in saying that Asahi Glass will enjoy a strong Q4.

Of course, AGC is a cyclical company and given the strong pull back of the world financial market it is quite possible the stock will underperform the market. However, I will use this opportunity to add more weigh in the stock as I strongly believe Flat Panel related stocks will enjoy strong revenue growth over the next few quarters.

By Olivier Levant - Posted in: Japanese Companies Analysis
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Friday 29 january 5 29 /01 /Jan 11:33

If you are reading this article I assume it is because most of you are already familiar with the recent news about Toyota Motors. It could end up being very detrimental to the company and the consequences could be disastrous in term of market share in Europe, China and the United States.

Let’s recall what happened. Recently there has been a few car crashes in the US involving Toyota cars. A few people died in those car crashes, which raised concerns since there was a similarity in the even leading to the crashes. The cruise control on the Toyota cars seem to stop responding and cars accelerated for no reason leading to an accident.

After verification, there was a malfunction in the gas pedal of the Toyota cars. Several lawsuits are filled against Toyota right now from families that lost relatives. So far, it is not so unusual and it is the typical procedures car makers have to go thru when something of that magnitude happens.

However, the issue here is that the defective gas pedal is used on millions of cars and Toyota has just decided to recall about 8 million cars around the world to fix the problem. Analysts believe it could cost $1 billion a month for Toyota if they can’t fix the problem right away. As much as it is costly to Toyota in terms of Operating Profit, the biggest trouble does not lie into the financial loss.

What Toyota is facing now is a loss of credibility. Toyota has been able to become the leader carmaker in the world because it has build very secure cars. The recent problem with gas pedal will damage dramatically its image and would open the door to Toyota’s competition. Already Honda, Kia, Ford and GM have declared they will use Toyota’s weakness in the short time to increase their market shares and weaken the Japanese automaker.

I have no doubt these four carmakers will be able to increase their sales stealing Toyota’s customers. In an industry where confidence is Key, Toyota’s problem with its gas pedal will have a lot of consequences for the future of the firm. It is not hard to understand that the auto industry is of the “monopolistic competition” type since most cars (except the hybrid) are identical at 95% no matter which brand you take (e.g: a Ford SUV is very similar to a Toyota SUV). Thus, consumers can easily change from one brand to another without much thinking.

On top of that I read this morning that the US Senate is asking questions about Toyota. Why would they do that? What comes to mind right away is protectionism. By doing so, senators are trying to encourage customers to buy Ford and GM cars. The United States is dedicated to keep its auto industry afloat and the recent announcement from the Senate is just another example of politics stepping in the world of business. I don’t like it but I understand it!!

The next few months will tell us if Toyota is able to regain customers’ confidence. So far, investors are worried given that the stock has tumble more than 15% in the past week and the announcement of the recall.

By Olivier Levant - Posted in: Japanese Companies Analysis
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Tuesday 26 january 2 26 /01 /Jan 16:17

Governments’ policies still drive markets.

For investors who still believe the market is back to normal, think again!! Over the past few days there have been important rumors about policy changes in China and The United States. What resulted was the biggest weekly drop on the stock markets.

So, ok markets dropped almost 3% in a week, but can we link the drop with political announcement. I believe so for a very important reason. The earning has started and for the third consecutive quarters companies are largely beating expectations. If the economy and markets were back to more normal times, earnings above expectations would drive market higher since analysts would increase their price targets and guidance.

Is that what happened last week? What about today after Apple and Texas instruments beat by a large margin expectations? Markets are lower, like company news had no effect on investors. But why? What is driving markets now?

What markets are telling us is that times are for concerns. The quantitative policies in place around the world were major factors for the strong market recovery since last March and reasons for the stability of the world economy. However, today, China is concerned about asset bubbles of its own economy. Obama is concerned about the upcoming election of the mid-term election and announced very dramatic reforms for financial markets.

The drop of the markets tells us that for the world economy to remain stable governments need to keep printing more money and implementing quantitative easing policy. To me it is far from the definition of a healthy economy. And from what investors are telling us, they believe the economy is not ready for governments to stop alimenting markets with free money.

I just read today on CNBC that a few strategists are already talking about a 20-25% drop in the US market. Dick Bove even says that if Obama’s announcement becomes a reality it would be disastrous for the US economy and call for a market crash. It sounds like the Japanese market of 1992, 1993. Debt levels are at a historical level but I am worried about the consequences of policy changes in the short term because private consumption is not at normal levels. One more example is the 13;3% drop in consumer credit volumes in 2009 … another unpleasant record !!

I would wait and see if it is another false market break. If investors are concerned then I would advise them to reduce their exposure to stocks in the short term.

By Olivier Levant - Posted in: Global Financial Market News
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Tuesday 19 january 2 19 /01 /Jan 08:32

Mr. Kenji Tamura announced today a new regulation for consumer finance companies might be voted. The deadline to the 2006 regulation is a few months away. The voted regulation is very restrictive on companies like Aiful and Promise, which seems to come at a bad time when japan like many other countries are trying to revive the lending activities especially for consumer finance companies.

The consumer credit sector has been since 2006 under scrutiny and has experienced a lot of changes. To recall, before 2006 there were no limitation on credit loans to consumers and interest rates were as high as 30%. Companies were using ancestral techniques of persuasion to recover their money, which looked more like Mafia’s behavior to many.

In 2006, the Japanese government decided to get rid of these practices and implemented ceiling on interest rates. The decision devastated many consumer finance companies but it was a needed move by the government. I am sure you remember the tumble of many stocks, like Credit Saison, in 2006-2007 even before the financial crisis hit Japan. Even though, the Japanese government had given companies three and half year to implement the new legislation, investors decided to stay away from such stocks.

Recently, many market participants have expected government to ease legislation as the country is under threat of a long period of deflation. Stock prices for consumer finance companies have skyrocketed more than 50% in a few weeks. However, Mr. Tamura’s announcement is not as optimistic as investors would have loved to. It seems there is a 50-50 chance legislation would not be change. As a result consumer finance companies tumbled today in the stock market. Promise led the group with a fall of more than 6%.

It is a very difficult decision for the new Japanese government. If legislation was to change it would had more pressure on consumers, which goes against political campaign promises. On the other hand the lending activity on the archipelago needs to recover if the government wants to get out of deflation.

I believe if there is a change in the legislation it would be a big step backward for the government. There are probably other ways to revive the lending activity. I think it would be a wrong message to send the Japanese population …. But a positive one for investors!

By Olivier Levant - Posted in: Daily News
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Profile

  • Olivier Levant
  • O.Levant - My 30 Japanese Stocks Portfolio
  • Enterprise
  • 09/05/1979
  • I am passionate about Japan and more particularly about investing in Japan. From 2006 to 2008 I managed a Large Cap Japanese Equity Fund at Groupama AM. I invest in stocks based on a GARP strategy and a mix of top-down and bottom-up approaches

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