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Is The Sun Rising For Japan With This 15 Percent Return?

Tickers in this article: CAJ EWJ PC SNE TM

Back in August, 2012, a practice portfolio was created on Kapitall.com, at the height of the tension between China and Japan. Large positions with allocations of over 10% for Japanese-based companies were added. By November, 2012, shares in these large capitalization companies declined at their maximum levels, leaving the portfolio with a loss of 6.38%. Investors breathed a sigh of relief at the start of 2013, after a short-term resolution to the fiscal cliff was found. Japan’s stocks rose too:

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The top holdings are:

1)     Toyota Motors (TM) – up 21.88%. An unexpected rise in US auto sales in December helped support shares in Toyota. Toyota sold 9% more vehicles in December, or 194,143 vehicles.

2)     Honda Motors (HMC). Up 17.93%. Honda shares also rose as demand for automobiles improved.

3)     Canon Inc. (CAJ) – shares recovered, returning 14.85%, as investors warmed to the computer and technology firm.

4)    Panasonic Corporation (PC). Up 21.54%. Shares are on a downward trend, after shares peaked at $9.35 in January 2012.

5)     Sony Corporation (SNE). Down 5.38%. Sony does not have any major products that will help improve its profits. A PS4 console will not be launched until the end of 2013, at the very earliest. The photography division is improving.

6)     iShares MSCI Japan Index (EWJ). Up 5.57%. The small return relative to the other holdings illustrates that ETFs can underperform individual companies. This ETF pays a dividend yield of 1.92%, which helped generate a positive return.

7)     Nintendo Co. Ltd. (NTDOY). Down 22.73%. The anticipated launch of the Wii U pushed shares to a high of $17.50 in October, before investors took profits and sold Nintendo shares. Nintendo fell as low as $12.50, and closed recently at $13.11.

INTERACTIVE CHART: Click play to see changes in the 1-year return for the stocks listed

Commentary on Portfolio

The positive returns could continue if all major indices around the world continue to rise. Yet the sharp rise in Canon, Toyota, and Honda may be short-term, and other investors may take profits. By January 3, 2013, the following positions were made:

  • Position in Canon in the practice portfolio was reduced by 42%.
  • Position in Toyota was reduced by 50%
  • Position in Honda Motor was reduced by 43%
  • Position in Panasonic was reduced by 39%

The cash balance rose to 36.5% of the portfolio.

Would you like access to this portfolio? Send a message to the author, Chris Lau, on Kapitall.com and ask to have this portfolio shared.

Outlook

Investors could be too optimistic about automobile sales in China. Analysts only expect growth of between 5% and 10%. Stronger exports could be helped by a weakening in the yen in 2013.