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The Japanese people have sent a crystal-clear message to the government by voting out the bums. We think the political upheaval will accelerate rather than derail reform. We think the odds have improved on Japan engaging in deep-down institutional reform, cleaning up its banks, restructuring its corporations. We expect much more aggressive fiscal and monetary reform moving toward freeing up the Japanese market. Japanese officialdom's attempts to play ostrich and not recognize that there is a crisis have been rejected by the electorate. They want to see action. This will result in layoffs, rationalization, and downsizing plenty of nontraditional non japanese misery-but it is the necessary precondition for the country's pulling out of its crisis. If Japan accepts some pains, it has the resources to forestall a further meltdown. Putting off changes will only make things worse. But, of course, pols in Japan as elsewhere do listen to voters. The all-powerful MITI has already said it wants to encourage foreign investors in Japan-not something anyone every heard from MITI before. Even the crustiest, old-time political hack P.M. is talking about permanent tax cuts, another new tune. We were told about these changes by Ted Truscott, director of Global Equity at Scudder-Kemper. Big in Japan
Even before the election defeat of Japan's ruling party and the resignation of Premier Ryutaro Hashimoto (whom Trustcott called "a useless prime minister"), the survey showed that both domestic and foreign fund managers were boosting holdings of Japanese stocks, expecting that the country's economy would improve over the next 12 months. Also tipping Japan was Michael Burke, a respected chartist. His bullish percentage for Japan turned positive, and five Japanese mutual funds gave buy signals. And the consensus at the July meeting of the New York Quantitative Analysts Club, QWAFAFEW, was that Japan was now a buy. But Trevor Greetham, global strategist at Merrill, warned Reuters that fund manager optimism appeared premature given the wealth of negative economic indicators and the developing political uncertainty. "My worry is that people are expecting too much soon," he said. The survey showed that 72 % of Japan's fund managers expect a stronger economy in a year's time. Fund managers both in and outside Japan forecast a halt in the yen's slide over the next year, with Japanese money managers forecasting a rate of 139 yen to the dollar vs. a forecast of 143 yen by foreign investors. Political
indicators
The election defeat could lead to some positive move like an end to consumption tax announced last March. According to the poll, domestic buyers of Japanese equities outnumbered sellers by 34 % (vs. only 25 % in June). Foreign fund managers were also positive aboutJapanese shares. Buyers of stock among Continental European investors outnumbered sellers by 22 %, as compared to a mere 4 % in June. Most of the 68 European-based fund managers polled also expect the yen to appreciate against the dollar over the next year. Among U.S. investors, there were 21 % more buyers than sellers, the highest level since August 1997. Greetham said the Japanese government would have to move quickly to meet expectations of foreign investors or face the inevitable backlash. And "while the coalition is settling down, the economy will just be getting worse," he forecast. In contrast, fund managers remained broadly neutral on the United States and positive on Continental Europe but increasingly negative on Britain. Only 7% of UK fund managers expect an upturn in growth vs. 14 % in June. In fact, this is a lower figure than at the start of the 1990 recession. The Gallup Poll of fund managers in United States, Europe, Japan, Britain, Asia, and South America was conducted in July and involved 257 institutions managing a total of $6,061 billion. We recommend buying the Tokyo index using the Japan WEBS (ASE-EMU). WEBS stands for World Equity Benchmark Series. Do not buy closed-end funds investing in Japan at current huge premiums. In fact, the most daring of you may want to short Japan equity funds while buying the WEBS. Use a limit order, as WEBS fluctuates a lot even during the course of a day. by Vivian Lewis Reprintedfrom Global Investing. For a six-month trial subscription ($59 in the United States, $69 elsewhere), call withyour credit card to (800)388-4237 or (970)493-3793, fax8781, or send a U.S. -dollar-denominated check to Global Investing, 1331 Red Cedar Circle, Fort Collins, CO 80524, USA. PHOTO CONTEST
Each year you send to us your best photos, taken in destinations as far flung as Tanzania and Thailand, Quebec and Kathmandu. It's always a pleasure to open the envelopes and discover the wonderful places you've been traveling. With each picture we learn something new about how a country has changed ... how people dress ... how a certain mountain range looks in the fall. This year was no different: You sent us photos of boats in Malaysia ... horses in China ... women in the Cayman Islands. And as always, choosing the best ones was not easy. These three are our favorites-fall in Argentina, summer in Wales, and winter in the Bahamas-the black and white reproduction does them all an injustice.The Japanese people have sent a crystal-clear message to the government by voting out the bums. We think the political upheaval will accelerate rather than derail reform. We think the odds have improved on Japan engaging in deep-down institutional reform, cleaning up its banks, restructuring its corporations. We expect much more aggressive fiscal and monetary reform moving toward freeing up the Japanese market. Japanese officialdom's attempts to play ostrich and not recognize that there is a crisis have been rejected by the electorate. They want to see action. This will result in layoffs, rationalization, and downsizing plenty of nontraditional non japanese misery-but it is the necessary precondition for the country's pulling out of its crisis. If Japan accepts some pains, it has the resources to forestall a further meltdown. Putting off changes will only make things worse. But, of course, pols in Japan as elsewhere do listen to voters. The all-powerful MITI has already said it wants to encourage foreign investors in Japan-not something anyone every heard from MITI before. Even the crustiest, old-time political hack P.M. is talking about permanent tax cuts, another new tune. We were told about these changes by Ted Truscott, director of Global Equity at Scudder-Kemper. Big in Japan
Even before the election defeat of Japan's ruling party and the resignation of Premier Ryutaro Hashimoto (whom Trustcott called "a useless prime minister"), the survey showed that both domestic and foreign fund managers were boosting holdings of Japanese stocks, expecting that the country's economy would improve over the next 12 months. Also tipping Japan was Michael Burke, a respected chartist. His bullish percentage for Japan turned positive, and five Japanese mutual funds gave buy signals. And the consensus at the July meeting of the New York Quantitative Analysts Club, QWAFAFEW, was that Japan was now a buy. But Trevor Greetham, global strategist at Merrill, warned Reuters that fund manager optimism appeared premature given the wealth of negative economic indicators and the developing political uncertainty. "My worry is that people are expecting too much soon," he said. The survey showed that 72 % of Japan's fund managers expect a stronger economy in a year's time. Fund managers both in and outside Japan forecast a halt in the yen's slide over the next year, with Japanese money managers forecasting a rate of 139 yen to the dollar vs. a forecast of 143 yen by foreign investors. Political
indicators
The election defeat could lead to some positive move like an end to consumption tax announced last March. According to the poll, domestic buyers of Japanese equities outnumbered sellers by 34 % (vs. only 25 % in June). Foreign fund managers were also positive aboutJapanese shares. Buyers of stock among Continental European investors outnumbered sellers by 22 %, as compared to a mere 4 % in June. Most of the 68 European-based fund managers polled also expect the yen to appreciate against the dollar over the next year. Among U.S. investors, there were 21 % more buyers than sellers, the highest level since August 1997. Greetham said the Japanese government would have to move quickly to meet expectations of foreign investors or face the inevitable backlash. And "while the coalition is settling down, the economy will just be getting worse," he forecast. In contrast, fund managers remained broadly neutral on the United States and positive on Continental Europe but increasingly negative on Britain. Only 7% of UK fund managers expect an upturn in growth vs. 14 % in June. In fact, this is a lower figure than at the start of the 1990 recession. The Gallup Poll of fund managers in United States, Europe, Japan, Britain, Asia, and South America was conducted in July and involved 257 institutions managing a total of $6,061 billion. We recommend buying the Tokyo index using the Japan WEBS (ASE-EMU). WEBS stands for World Equity Benchmark Series. Do not buy closed-end funds investing in Japan at current huge premiums. In fact, the most daring of you may want to short Japan equity funds while buying the WEBS. Use a limit order, as WEBS fluctuates a lot even during the course of a day. by Vivian Lewis Reprintedfrom Global Investing. For a six-month trial subscription ($59 in the United States, $69 elsewhere), call withyour credit card to (800)388-4237 or (970)493-3793, fax8781, or send a U.S. -dollar-denominated check to Global Investing, 1331 Red Cedar Circle, Fort Collins, CO 80524, USA. PHOTO CONTEST
Each year you
send to us your best photos, taken in destinations as far flung as Tanzania
and Thailand, Quebec and Kathmandu. It's always a pleasure to open the
envelopes and discover the wonderful places you've been traveling. With
each picture we learn something new about how a country has changed ...
how people dress ... how a certain mountain range looks in the fall.
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