Japan's Election Results Mean Business

07/23/2013 12:00 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

As Japan's election trend became apparent, albeit with results that had been largely expected, MoneyShow's Jim Jubak, also of Jubak's Picks, saw ways the market has started to anticipate the trends, even before newly-elected Prime Minister Shinzo Abe announces his set of concrete proposals.

The Liberal Democratic Party of Prime Minister Shinzo Abe, and its allied New Komeito party swept to victory in Monday's elections for Japan's upper house of parliament. With the two parties expected to control at least 133 of the 242 seats in the House of Councillors, the upper house of the Diet, Abe will be able to move his economic and reform programs ahead without worrying about a dispirited opposition.

The Nikkei 225 moved up just 0.47% in Tokyo, as the election trend became clear. That's not surprising since the results were largely anticipated. Now markets will wait to see how Abe uses his majorities. Issues on the table include proposals to reduce guarantees of lifetime employment, new rules that would make it easier to consolidate smaller farms, increasing market access for foreign goods and services, and streamlining the approval of medical devices. The Abe government put off action on that list in the run up to the election out of worry that proposed changes would alienate conservative voters. Experts say that Abe has to hit the ground running with his proposals to restructure the economy if he's to avoid defeat by conservative elements in his own party. Abe has promised a concrete set of proposals by September.

But the Tokyo market should have plenty to occupy it in the meantime. Japan's earnings season starts next week, and the country's big exporters are expected to show year over year earnings growth of 10% to 20%, thanks to a weaker yen. Many companies used 90 yen to the dollar in their last forecasts for the quarter but in the event the exchange rate for the quarter was close to 99 yen to the U.S. dollar. That's likely to push earnings growth toward the upper end of the 10% to 20% range, at the same time as companies and analysts announce upwards revisions to earnings estimates for the next quarter. In anticipation of these trends, market leadership has switched from bank stocks to big exporters such as Toyota Motor (TM), a member of my Jubaks Picks portfolio Jubak's Picks portfolio, the company is scheduled to announce quarterly earnings on August, 2.

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, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own shares of Toyota Motor 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 here.

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