Take long-term approach when investing in Japan

Andrew Leckey

April 28, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

It's about time.

Long-suffering investors in stock funds that emphasize Japanese equities, nearly losing hope over several dismal years, are pleased with the dramatic 1993 rally on the Tokyo Stock Exchange.

They're also nervous that the always quirky Japanese market is getting ahead of itself.

A recently unveiled fiscal stimulus package from the Japanese government, coupled with an interest-rate cut, should help that troubled economy. But the steps are unlikely to work miracles.

New investors seeking to diversify by putting money into the revival of this Asian industrial giant should enter with their eyes open. A long-term approach, with set monthly investment to average out costs, avoids short-term grief in such a speculative market.

Choices are many for U.S. investors. There are conventional open-end mutual funds, as well as closed-end funds whose shares are traded on exchanges here. Individual Japanese stocks are also sold on U.S. exchanges as American Depositary Receipts, or ADRs.

"There has been a positive change in the Japanese investment environment, but I'm skeptical as to whether fiscal stimulus will do anything to improve the economy," said Christian Wignall, chief investment officer for San Francisco-based G.T. Global Financial Services.

"In addition, the Japanese market has gone up more than 30 percent in just three months, making it more expensive."

While most Japanese stocks, good or bad, have headed for the '' stars, a correction at some point will likely sort them out according to realistic prospects, Wignall predicts.

Wignall's $113 million G.T. Japan Growth Fund is up 12 percent this year, but its past mirrors other Japanese funds. It's down 0.07 percent in average annual return for the five-year period.

"You must be a long-term investor, buying good-quality growth companies," said Wignall. "Since the Tokyo Stock Exchange is more than 40 percent below its all-time high, this year could be considered a time of entry, if you're careful to average in your investing during the course of 1993."

Among holdings traded as ADRs on the New York Stock Exchange are famous brands Sony Corp. and TDK Corp. Tokyo Stock Exchange holdings include do-it-yourself retailer Shimachu Co. Ltd. and men's apparel chain Aoyama Trading Co. Ltd.

"Japan's stock market should do very well from a one-year perspective, though after such a sharp rise it's reasonable to expect it will take a rest," said Elizabeth Allan, portfolio manager of the $524 million Japan Fund, offered by Scudder, Stevens & Clark of Boston.

"I don't expect a major correction approaching its prior low, but I believe individuals interested in Japan should use discipline in investing a specific amount each month."

Her open-end stock mutual fund is up 15 percent this year but down 1.05 percent in average annual return over five years.

Video game giant Sega Enterprises Ltd., traded over-the-counter here as an ADR, is a large holding. Sumitomo Forestry Co. Ltd., a home builder traded on the Tokyo Stock Exchange, is another. "For diversity, 10 percent of an individual investor's portfolio should be designated to an international fund with exposure to the Pacific, Europe or both," says Haruo Sawada, senior vice president with Nomura Capital Management in New York.

His $50 million Nomura Pacific Basin Fund, up 13 percent this year, is up 2.89 percent in average annual return over the last five years.

It holds Matsushita Electric Industrial Co. Ltd., trading as an ADR on the New York exchange, and Tokyo Steel Manufacturing Co. on the Tokyo Stock Exchange. The fund's Japanese market risk is lessened by its investments in Australia, Hong Kong, Singapore, South Korea and Malaysia.

It's also possible to invest in Japan strictly by the numbers.

"We employ a computerized system that looks for undervalued Japanese stocks, primarily in the mid-capitalization sector," said Harry Markowitz, president of the $81 million Japan Equity Fund of Daiwa Securities Trust Co. in Jersey City, N.J.

Traded on the New York exchange, that closed-end fund's total return is up 29 percent this year, with Fujita Corp. among its ADR holdings.

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