Can Japanese Stocks Move Even Higher?

06/09/2014 12:01 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

Japanese stocks have been quite strong lately and MoneyShow's Jim Jubak shares his analysis of why this has happened and whether it can continue.

Well, everybody's been watching the European Central Bank and the People's Bank, and the Fed. The Japanese market has staged a rally. As of June 4, the TOPIX, which is the big Tokyo index, sort of like the NYSC index, has been up ten days in a row. I'm not talking about a huge thing here, but certainly a big reversal from the downward move in the earlier part of the year that had made the Tokyo market the worst-performing developed market in the world.

A couple things going on, one is that as people are starting to anticipate that US economic growth is going to be relatively stronger in the second half of the year, the yen has started to come back down. When the yen goes down, Japanese stock prices go up because, hey, when non-yen earnings get repatriated back into yen and those currencies are stronger, you get more yen for the buck as it were. The other thing is that we've got is a really honest to God real estate boom going on in Japan, particularly in Tokyo. It's fueled by a couple things; the Tokyo has been awarded the 2020 Olympics and so we've got a lot of real estate developers looking to cash in on that and the money is also cheap so you've got that going on and vacancies. Commercial vacancies in Tokyo have fallen to the lowest level that they've been since 2009. The last part of it is that the government has released a report from the government pension investment fund. This is the world's biggest pension fund that basically says, hey, we've got about 17% of the fund in equities right now but we think we can easily move that above 20% and indeed we're going to have to to get the returns that we want so people are starting to anticipate government money, trillions potentially, well, hundreds of billions anyway, flowing into Japanese stocks and overseas stocks and selling of Japanese treasuries which would again send the yen down, so you got all that going on in Japan.

It's hard to play all of this. The one stock that I own in the Jubak fixed portfolio that I think really does this because I think what you're looking for here is financials or real estate. There's really nothing that trades that I've been able to find that trades in enough liquidity in New York in the real estate sector so you try and look at big banks. The one that I own in the Jubak fixed portfolio is Mitsubishi UFJ Financial Group, symbol is (MGU), that's a vehicle that I'd really look to put new money in at this point in the rally.

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