Trade Deficit Will Prove to Be Good for Japanese Stocks - CNBC.com

Japan’s trade deficit surged to a record high in January underscoring the grim outlook for the world’s third largest economy. However, equity strategists believe the weak economic data will compel the Bank of Japan to further expand its asset purchase program, offering a boost to the country’s undervalued stocks.


“This trade deficit is a very good thing, it provides a lot of excuses and a lot of reasons for the Bank of Japan and the Ministry of Finance to come in with new policies and different ideas of what they are going to do with the economy,” Glen Wood, Partner & Head of Sales of equity research firm, Ji Asia, told CNBC.
Japan on Monday reported a worse-than-expected trade deficit of 1.475 trillion yen ($18.59 billion), more than 50 percent larger than the previous record of a 967.9 billion yen deficit seen in January 2009 during the midst of the global financial crisis.

Analysts say this a clear call for further stimulus by the BOJ, which unexpectedly expanded its asset purchase program by 10 trillion yen last week as part of efforts to weaken the yen and beat deflation. Since the announcement, the yen has fallen over 2.5 percent against the dollar and continues to hover near multi-month lows against other major currencies.
“(A weaker yen) is great for exporters and the whole investment in Japan theme and I think you are going to see capital shift back into Japan,” said Wood.
Market watchers expect further asset purchases by the BOJ, which will push the yen further down against the dollar in weeks to come, thereby benefiting the country’s exporter stocks that have been hard hit by the strength of the currency.
"At the end of the day if this weakness of the yen is engineered correctly, I think it’s the broad Japanese market that would actually have a substantial rally,” Clay Carter, Head of International Equities, Perennial Investment Partners, said.
Marc Faber, editor of the Gloom Boom & Doom Report, told CNBC last week that Japan was his favorite equity market based on the yen weakening past key levels against the dollar.
“I think there's a good chance that Japanese stocks will surprise on the upside," Faber said.
John Vail, Chief Global Strategist, Nikko Asset Management added, "We are overweight on Japanese equities for the next to 3-6 months, valuations are extremely low. Things are looking quite good in Japan right now especially as the yen is weakening."
While exporters are likely to be the main beneficiary of weakness in the Japanese currency, Wood says cyclical stocks in the shipping and steel sectors also look attractive on the back of an improving outlook for the U.S. economy.
“The yen sensitive sectors are obviously moving the fastest, but on top of that you will get tailwinds coming from U.S. (economic data) – that’s great for some of the cyclicals,” Wood said.

Investing in a little light research could prove to be lucrative - TheNational

Most books on Mr Buffett - and I've read a few - are by some third-rate author desperately struggling to cash in on the great man's celebrity. Not this one. Browne's father worked closely with the Sage of Omaha, acting as stockbroker when Mr Buffett bought Berkshire Hathaway half a century ago. Young Christopher inherited Mr Buffett's investing principles along with the Browne family firm, and used both to great effect.

Christopher Browne died in 2009. His legacy: millions of dollars; an estate in the Hamptons; and a pocket guide to get-rich-slow.
The Little Book argues that making money in the market is easy. First, avoid so-called growth stocks that are darlings of the financial press (think Groupon today, or pretty much any over-hyped tech stock of the 1990s). Second, invest in solid, stodgy companies with stable earnings - but only when the share price is low. "Buy stocks as you would buy groceries - when they are on sale."
All well and good in Nebraska. But can it work in the Gulf region?
Let's find out.
Here's one of Browne's bargain-hunting tricks: find companies with a price/book (P/B) ratio below 1. In simple terms, book value is the cash you'd be left with if you shut the company tomorrow, selling all the assets and paying all the debts. If the book value is more than the firm's stock market value, you could be on to a winner.
I took Browne's advice and ran a search of all 200 companies in Bloomberg's GCC stock market index (for the record, I searched using tangible book value, a more stringent measure that strips out fluffy assets such as goodwill). Here's a list of the 10 cheapest stocks in the Gulf right now, by price/book value: Abu Dhabi National Hotels 0.31; Dubai Investments 0.33; Deyaar 0.40; Sudan Telecom 0.42; Agility 0.52; RAK Ceramics 0.53; Sorouh 0.54; Emaar 0.55; United Development Company 0.66; Union National Bank 0.67 (source: Bloomberg).
Browne warns this is only a rough guide to finding value stocks - plenty of bad companies have had low P/B ratios. But if we scratch below the surface of the Gulf's cheapest three shares, we find at least two of them stand up to scrutiny:
Abu Dhabi National Hotels (ADNH) I've been a big fan of this stock for a while, so I got a warm, fuzzy glow when it topped the book value charts. ADNH owns and manages hotels across the emirates. It is well run, with a track record of profitability dating back to the 1970s. The hotel division is the bedrock of the business, but it actually generates more revenue from a catering joint-venture with the global firm Compass. Analysts predict a steady increase in revenue and profit, as Abu Dhabi's tourism sector grows, and rate the stock a buy.
With a price/earnings ratio of just 7 based on next year's forecast earnings, ADNH looks a strong candidate.

Dubai Investments Mr Buffett would surely love this company. Dubai Investments owns the kind of old-fashioned, stable, cash-generating businesses he covets: a glass factory; a dairy farm; a drug maker; aluminium extrusion; edible oil. The list goes on.
Sure, Dubai Investments has faced challenges lately. Profit slumped to Dh239 million (US$65m) in the first half of this year - down almost 50 per cent year-on-year. The Dubai property slowdown and the Arab Spring have both taken their toll.

But neither presents a long-term threat. Analysts at TAIB bank have a "buy" rating on the stock, forecasting net profit of Dh1 billion by 2013.
That equates to a mouth-watering price/earnings ratio of less than 3, based on today's market value.
Deyaar Development Here we see the limitations of book value laid bare. On the surface, Deyaar looks like a screaming buy - a property portfolio trading a discount of 60 per cent.
But hold on. Last year, Deyaar racked up losses of Dh2.3bn - more than its market value - mainly due to write-downs and impairments. It's creeping back into profit this year as it completes tower blocks in Dubai, but doubts remain about what kind of company Deyaar will look like in five years.
Saeed Al Qatami, the chief executive, says the new strategy is to focus on low and middle-income housing in the UAE and surrounding region.
Investors and analysts are yet to be convinced.
Irfan Ellam at Al Mal Capital has a "hold" recommendation on the stock. He notes the attractive P/B ratio, but says a "lack of strategic clarity" makes it hard to see where long-term growth is coming from.