Two Contrarian Buys in Japan


Yiannis Mostrous Image Yiannis Mostrous Editor, The Capitalist Times

Yiannis Mostrous, editor of the Silk Road Investor, says investors have turned away from Japan en masse—which may be a good reason to look for good buys there.

Japan has to be the least interesting market in the world right now. Nobody I’ve spoken to is interested in investing there, based on the perception that because there are so many opportunities elsewhere, money allocated to Japan is dead money.

There are better opportunities right now than Japan, which is why Japan has been ranked quite low for some time.

On the other hand, the negative sentiment surrounding the market offers an opportunity for long-term investors to pick some undervalued stocks, if only from a contrarian point of view. And no, I don’t think you’ll be walking into a “value trap.”

Big banks, in particular, have been the dogs of the Japanese market for a while now. They’re down around 20% from their June highs and now trade at valuations close to the 2003 lows.

Recent credit woes have also added to the already negative sentiment, even though Japanese banks have little exposure to overseas subprime mortgage problems and little risk in nonperforming domestic loans. Last time I checked Japan isn’t in the midst of a financial crisis.

Mitsubishi UFJ Financial Group (NYSE: MTU) has been hit particularly hard. The main problems have been weak domestic lending demand and exposure to subprime loans.

The latter is the most dangerous development—the company has reported exposure of ¥280 billion.