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Suddenly Japanese consumers are consuming--that's good news for Seven & I
05/01/2013 6:16 pm EST
I think the odds are still against the economic program of Prime Minister Shinzo Abe in the long run, but the March numbers on consumer spending are still startling. Consumer spending in Japan was up 5.2% year over year in the month as Japanese households have momentarily forgotten fifteen years of deflation. Economists are now projecting that consumer spending will help drive the Japanese economy to a 2.1% annual growth rate in the June quarter of 2013.
Up to this point the argument for owning Japanese equities was the weak yen and the equities to own were shares of Japan’s big exporters such as Toyota Motor (TM).
As the Bank of Japan bought tens of billions in bonds and other assets every month in an effort to revive growth in Japan and to create inflation, it would flood global financial markets with so many yen that the price of the Japanese currency would fall. That would make Japanese goods cheaper to consumers who paid in dollars or baht. Japanese exports would also get a boost to revenue when sales in stronger dollars or won were translated back into weaker yen for corporate reporting back home.
Now, though, if the Japanese domestic economy is actually going to show higher growth because of Abe’s program, then investors should add a taste of domestic Japanese companies to their portfolios too. That’s actually more difficult than adding shares of exporters. The biggest Japanese exporters are familiar global names and their shares trade as ADRs (American Depositary Receipts) in New York.
Japanese companies with a domestic focus are certainly less familiar and most of them trade only in Tokyo. At this point, with only one month’s data to support the idea that Abe-nomics might work, at least in the short run, you may not think it’s worth the effort to dig out information on these names or figure out how to buy them.
But I do have one idea that has exposure to both the weak yen and the domestic growth scenarios. Seven & I Holdings (3382.JP in Tokyo.)
The company operates 48,000 7-11 stores around the world. Only about 15,000 of those are in Japan. The other 31,000 give the company big exposure to the weak yen story. Sales from Indonesia and the United States, for example, translate into more yen on the corporate financial statements back home.
But the company is also one of the largest retailers in Japan with its 15,000 7-11 stores and its Ito-Yokado, Sogo, and Seibu chains of department stores. If the Japanese shopper is going to be spending more, there’s a good chance that spending will take place at a Seven & I property.
The stock has certainly had a good run in the last year—it’s up 57% in the last 12 months—but I calculate a target price about 15% above the May 1 close at 3730 yen.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares in Seven & I as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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