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Report shows investors how to trade Japanese tsunami on equities

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(Credit: Reuters) Stacks of ten thousand Japanese yen bills are piled up before counting at the Korea Exchange Bank (KEB) in Seoul November 11, 2008.Japanese Yen Bills
November 29
3:51 AM 2013

Japanese equities have been in the doldrums for the nearly twenty years. However, these securities have made a strong showing on the financial market under the leadership of Prime Minister Shinzo Abe, who has pledged to revive the Japanese economy. Staying true to his promise during the polls, Abe has introduced a fiscal package worth USD 117 billion for the purpose and has instructed the country's central bank to unleash what Forbes contributor Panos Mourdoukoutas calls a "yen tsunami" to bring the country out of deflation and into inflation.

What types of trades can investors do to capitalize on this Japanese tsunami? Mourdoukoutas suggests four types of trades. His first suggestion is to go short on the Japanese Currency Yen Trust. In the past year, the fund was already down 20% but Mourdoukoutas things the trend has just begun. Short selling refers to the sale of a security that the seller has borrowed. The motivation behind a short is the belief that the price of the security will fall, allowing the seller to profit from the sale.

Mourdoukoutas'second trading suggestion is to buy the WisdomTree Japan Hedged Equity. This is the fund that monitors the price and yield performance of the WisdomTree Japan Hedged Equity Index before all the fees and expenses. For US investors, Mourdoukoutas says the fund is currency neutral and pays a dividend of 1.01%. He also suggests investors to bet on a closed fund that pours money on smaller high technology firms. The Japan Smaller Capitalization pays a dividend that is close to 1% and gives investors the chance to capitalize on the boom in high technology in Tokyo and Nagoya where most of these firms are based, Mourdoukoutas said.

The final suggestion he gives to investors is to bet on Japanese exporters like Kubota Corporation. The manufacturer of construction equipment and other machineries is set to benefit from a weakening yen which will enable its products to compete globally, Mourdoukoutas said in an article.

Mourdoukoutas, however, said the bold policies of Abe could trigger a "perfect storm" in the world economy. He concluded, "The yen tsunami will collide with the dollar and the euro tsunamis, fueling a currency war that may end in an open trade war that will slow-down or even reverse globalization, as major economies try to export their way out of stagnation-a nightmare scenario for financial markets. Hype should never be a substitute for due diligence, especially after the big run up in Japanese equities in the last year."

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