Jan 2, 2012

What if 2012 is the Year of the Samurai?

Forget the dragon, cards may be stacking up for Japan to outperform significantly in 2012. The Nikkei was down 17% in 2011 and in fact after peaking just over 20 years ago it is currently trading at around 20% of that all-time high (true, the component stocks and weights have changed so this is not an exact comparison). In fact for the majority of currently active investors and fund managers simply ignoring Japan has been a very successful strategy for most of their careers.

But lets take a careful look. Japan has a smoothly functioning, possibly overly harmonious, society with amazing infrastructure and a highly educated and motivated labor force. The quick recovery from the recent tsunami and nuclear disaster was no mean feat. When power shortages were looming in the summer, a modest amount of moral suasion by the government was enough for businesses and consumers to reduce consumption and mostly avoid blackouts. Japan, Inc. is alive and well.

And on a global scale the alternatives are disappearing fast. In terms of equities, US is unlikely to do anything spectacular, Europe is probably setting up for a recession, as for the BRICs its definitely time to handle with extreme care. Except for Treasury's, government bonds can be quite painful and even Gold is no longer the safe haven of years past. It is by no means a certainty, but the year of the samurai may be upon us.

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