Japan's stocks revving up?

HERB GREENBERG

February 15, 1991|By HERB GREENBERG | HERB GREENBERG,Chronicle Features

We haven't heard much lately about the Japanese stock market. In December 1989, the much-ballyhooed Nikkei index started its 34 percent dive from a lofty 38,000 to its current 25,000. But the Nikkei's fall from grace is about to end, says Henry B.W. de Vismes, who is so convinced of it that he plans to boost the Japanese portion of his portfolio to 40 percent from 28 percent by April. "Japan will be the best-performing major market in 1991," he says.

De Vismes shouldn't be taken lightly. He runs the international-investments division for Citibank's private bank, and will also manage Citibank's new Landmark international stock fund, being launched this week. Before joining Citibank he ran Kleinwort Benson's international stock fund, which Lipper Analytical Service ranked the fifth-best performer among all stock mutual funds for the five years through June 1990, when he left to join Citibank.

He cites a number of reasons for being bullish on Japanese stocks, including the Nikkei's price/earnings ratio, which has been halved from its peak, and a historic relationship between the yields of Japanese long-term bonds and the earnings yields of stocks (defined as the No. 1 divided by the price/earnings ratio). When the earnings yield rises and the long-term-bond yields fall -- which he expects to happen soon -- stock prices tend to go higher.

By de Vismes' calculations, the Nikkei should rise to a range of 26,000 to 28,000 by June, and to 30,000 by year-end.

Apart from Japan, de Vismes thinks that Latin America will be "one of the most promising areas" for investors this year.

He points especially to Mexico. The recently privatized Mexican telephone company, Telefonos de Mexico, has been a hot stock for the past two years, and he expects a similar performance from banks as they become privatized later this year.

GURU GRAPEVINE: It happened to California real estate, and it's bound to happen to stocks, too. It's just that nobody can predict with any reliability when the boom will end. In the past 30 days, the Dow has soared at a near-record pace.

Press analysts ask why the rally is so strong, and the answer is likely to be twofold: Existing momentum is carrying the market forward and "the Fed is easing" by nudging down key interest rates.

What about fundamentals? Still bearish. C.J. Lawrence's chief economist, Ed Hyman, is pessimistic, declaring that "the economic downturn is gathering momentum" -- not a good sign for stocks.

But who cares about fundamentals when the technicians are saying that the market still has a way to go?

"Don't make the mistake so many investors are doing with this market," advises Stan Weinstein of the Professional Tape Reader newsletter. "They are becoming fixated on the near-term overbought condition and deciding that this means the market soon must plunge. We couldn't disagree more!"

He goes on to say that looking back 20 years, two things have happened when stocks exploded upward. First, there has been a mild and controlled correction. Second, in the months following a correction, "the market has moved higher."

SPLITSVILLE: Big surprise! In the wake of fast-moving stock prices, companies are starting to declare splits.

Just remember, although they sometimes cause a stock to rise in the short term, splits really amount to nothing more than smoke and mirrors. They increase a company's outstanding shares without raising shareholder equity. A stock that sold at 60 before a 2-for-1 split will sell for 30 after the split, making it appear to be a sudden bargain. But it really isn't, because earnings per share and dividends per share will be adjusted accordingly.

Splits are mainly a ploy to make a stock attractive to small investors. One hundred shares of our hypothetical $60 stock may be out of reach for many investors who do have enough spare cash to buy 100 shares at 30.

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