Where to Invest in Asia

by | Nov 3, 2004 | Archives

A falling dollar creates international business and international investing opportunity in Asian currencies and even Japanese shares. This November 3, 2004 Gary Scott message explains why.

For the past several years, the U.S. had built a huge and growing trade deficit. Europe has seen its currency rise versus the U.S. dollar but this is not true in Asia. China and Japan have protected their currencies (so they can continue to export competitively to the U.S.), by aggressively buying dollars. The rest of Asia has had to stay in step with this policy so their exports to America do not become more expensive than China’s and Japan’s.

This is building a huge distortion and like a major fault line the longer the pressure builds the greater the shock when the correction comes.

Literally every lesson of economic history warns that the dollar must fall against the yuan and yen. What can we as investors and business people do about this?

The answer would seem to be invest in yen and yuan. Yet this is not so simple. The Chinese are investors not borrowers so there are not lots of yuan investments lying around. Chinese shares may be an answer. However we may want to consider instead investing in Japan and the yen. Think about this.

First, Japan has been in a decade-long economic doldrum. What goes up must come down and vice versa. This alone is food for thought.

Next, a falling U.S. dollar will push up the price of oil. If you do not understand why, just believe me on this for now.

Combine this thought with the fact that Jyske Bank recently wrote in their daily analysis:

“Japanese Finance Minister Sadakazu Tanigaki said on Tuesday that rising crude oil prices may adversely affect the global economy and that he would be watching developments. 'We will continue to monitor (oil) prices closely,' he told a news conference. Tanigaki reiterated that Japan's economy has grown more resilient to rises in oil prices, but that other economies may not be able to deal with rising costs as effectively and that could have a negative impact on the global economy.

“Japanese stocks advanced after a plunge in oil prices allayed concern energy costs will damp economic growth and corporate profits. Exporters such as Nissan Motor Co. and airlines including All Nippon Airways Co. gained. 'The steep drop in oil prices reduces worries about economic growth, while companies such as Honda are bolstering optimism with their forecasts' said Hiroichi Nishi from Nikko Cordial Securities Inc. in Tokyo.

“Japanese stocks rose, led by carmakers including Nissan Motor Co. and technology shares such as Canon Inc., on optimism they will report higher quarterly earnings this week. 'It’s going to be a good earnings season', said Masanori Hoshina, head of Japanese equities at BNP Paribas Securities Japan Ltd. 'The mega banks are looking interesting'.”

Japanese cars and banks? US carmakers today make less than $1000 a car profit. Honda makes over $1,000 a car. Japan’s banks have slowly been resolving problems that for ten years. This is a place to look now for diversification.

We’ll even look at how to power pack such a position with added 1.7% yen loans at our course this weekend. You can still make a reservation.

I hope to see you there!