Japan's 2010 economic outlook.

I rarely cut and paste entire articles but I am sure that there are many who are concerned about the Japanese economy despite what Marc Faber might say about being a contrarian.  So, I am sharing this latest report from Bloomberg here:

Double-dip worries abating

Tokyo upgrades economic view for first time since July


05:55 AM, Mar 16, 2010, TOKYO - The Japanese government yesterday raised its assessment of the economy for the first time in eight months, saying the recovery had begun to spur profits, home building and consumer spending.

"The economy has been picking up steadily," though it remains in a "difficult situation" because of high unemployment, the Cabinet Office said in its report for March. It added that the rebound was still weak.

Reports in the past month have shown that the nation's export-led recovery is starting to benefit consumers, with wages rising for the first time in 20 months in January and households increasing spending for a sixth month. Yesterday's upgrade comes on the eve of the Bank of Japan's board meeting, where the central bank may expand credit measures amid deflation.

"There are budding signs for a self-sustaining recovery in domestic private demand," Finance Minister Naoto Kan said yesterday.

"Concerns over a double- dip recession are abating," he added.

The Cabinet Office raised its evaluation of corporate profits, business investment, consumer spending, housing construction and employment.

The upgrade of five components is the most since July 2009. The government had said last month that the recovery was "short of autonomous factors".

Earnings are "improving" and capital spending "is starting to level off", the report said. Housing construction and private consumption are "picking up", it said.

Profits surged 102.2 per cent in the three months ended Dec 31 from a year earlier, the first increase in 10 quarters, a Finance Ministry report showed this month. Capital spending fell 18.5 per cent, the smallest decline in a year.

The unemployment rate dropped to a 10-month low of 4.9 per cent in January. Though the labour market remains severe, evidence of an "incipient recovery can be seen recently", the government said.

The improvements in the job market helped consumer confidence climb to a four-month high in February, a separate Cabinet Office report showed yesterday. Bloomberg

Charts in brief: 16 Mar 10

The STI defied gravity to add 22.1 points today, closing at 2,896.43, it is only a bit more than 100 points away from the magic number 3,000.  However, today's volume of 1,143,954,590 and total value of  $989,019,766 suggest that the upward movement is weak.  Volume is low and the value is lower.  Activity has clearly reduced and moved to the pennies.

It would not be wrong to lock in some gains for anyone vested in index linked counters. For anyone looking to add to their positions, waiting for a pullback might be prudent.  However, if in doubt, my strategy is always to hedge.  For the person who is vested, divesting half of his position might be a good idea.  For the person looking to add to his position despite the technicals, adding a smallish position would be less risky.

Saizen REIT: 469 lots sold down at 16c towards the closing bell pushed the MFI further into oversold territory.  Stochastics has also dipped into oversold territory.  That buying momentum is lacking is quite obvious.  Any further weakness would be an opportunity to load up.

Golden Agriculture:  Price closed unchanged on lower volume today. It has formed higher highs and higher lows since early Feb.  Uptrend is intact and I am still waiting to collect at supports.

Healthway Medical: A black candle day on increased volume.  Since mid January, this is a rare black candle day with such high volume.  A decline in the OBV indicates that distribution is underway.  A lower high and a lower low on the MFI confirms weaker buying momentum. The MACD is closing in on the signal line which might result in a bearish crossover.  Initial support is still at 16c and it looks like it will be tested.

Charts in brief: 15 Mar 10

I decided to just do a summary, charts not included, to highlight what I think might be some interesting observations for a few counters I charted this evening.  I call this "Charts in brief" and this will be something I might do more often as and when I don't really have a lot to say about any counter in particular.

Golden Agriculture: The sell signal on the MACD is confirmed today.  Price closed at 57c, forming a doji, on reduced volume.  I am still waiting to accumulate at support.  Please see: Golden Agriculture: Waiting for support.

AIMS AMP Capital Industrial REIT:  MFI and OBV both turned up.  The MACD has crossed zero, suggesting a return of positive momentum.  An expansion in trading volume with the next upmove in price would be nice.  Please see: STI and Aims Amp Capital Industrial REIT.

Healthway Medical:  A black candle day but on much reduced volume.  OBV is flat.  So, no distribution.  MFI declined but is still in the overbought region.  Although the uptrend is intact, buying on weakness would be a safer option than buying now and hoping for a breakout.  Basically, the risk premium is much higher now.  Please see: Healthway Medical: A retest of recent high.

Saizen REIT: MACD seems set to make a bearish crossover with the signal line.  MFI has gone into oversold territory; buying momentum is weak. OBV has dipped.  This is a sign of distribution.  The uptrend is intact even if the price should retreat to 15.5c. I know many people ready to pounce on the counter if this should happen.  I would buy more on weakness.  Please see: Saizen REIT: March 2010 presentation.

Genting SP:  This counter has been enjoying a revival lately but on decreasing volume.  Daily volume has been lower with the price moving higher since 5 March, the day when price and volume spiked up.  This suggests that the buyers are, probably, mostly shortists covering their positions.  This is not to say that the price cannot move higher but without a significant number of new participants coming in on the long side, any move upwards would lack sustainability.  Please see: Genting SP: Stale bulls' second chance?

Saizen REIT: March 2010 Presentation

Regular readers would know by now that I am accumulating units in Saizen REIT as it is a huge bargain.  I have likened it to buying a $2.9m condominium unit for $1.6m before.  That analogy still stands.  On 3 March 2010, Saizen REIT's manager, Japan Residential Assets Manager Limited, presented their latest results and I would like to share some numbers here with fellow unitholders and other interested parties.

The NAV per Unit is S$0.40.  However, some are worried that the portfolio of properties under YK Shintoku might be foreclosed.  In case of foreclusure, the NAV per Unit excluding YK Shintoku would be S$0.36.  On top of this, some are worried about the dilution that would take place once all the warrants are exercised.  In such an instance, the diluted NAV per Unit would be S$0.28.  The diluted NAV per Unit is based on 1,446,357,417 Units and warrant proceeds of S$44.7 million.  Please find the full details at:
Saizen REIT: March 2010 Presentation

Saizen REIT is on track to resuming income distribution to unitholders in mid 2010 and its gearing level would fall upon the the full repayment of its CMBS loan for YK Keizan in April next month. A re-rating upwards by credit agencies is highly probable.


Although Saizen REIT's remaining CMBS loan for YK Shintoku is still being negotiated, personally, I do not foresee foreclosure taking place. If the loan is still being serviced, why would the lender want to proceed with foreclosure, especially with the punitive (aka lucrative) interest rate of 7% imposed on the borrower, more than doubling from the 3% before? Having said this, it would be in the interest of all unitholders that Saizen REIT's manager secures re-financing at a more reasonable cost soon.

June 2009 data from CB Richard Ellis, Colliers International, show that the average rental yield in Japan is the highest for residential properties at 5.5 to 6.5% p.a. This is followed by industrial properties, retail properties and office properties. Such high yields have attracted the attention of institutional funds which are expected to snap up assets at bargain basement prices. It is when things look the bleakest that the most opportunities are to be found. According to one Japanese investment bank analyst, for example, “we’ve been approached recently by many pension funds that want to increase their exposure to real estate because they realize prices are going down. They are happy to buy early because their return target is very low, maybe 5 percent.”

Some people have asked me why not go buy some Japanese residential real estate? Well, obviously, I do not have deep pockets like the institutional funds. I won't be able to buy a single apartment in Japan, let alone a whole apartment block.
The way I see it, Saizen REIT's financial health has improved significantly and will continue to improve. With its units trading at such a deep discount to NAV, if I have the money, why bother buying the underlying assets? I would just buy the REIT. To make it more tantalising, Saizen REIT is likely to yield upwards of 10% p.a. when it resumes income distribution to unitholders from mid 2010.  This is much higher than the average of 5.5 to 6.5% yield for Japanese residential real estate as reported by CB Richard Ellis, Colliers International in their findings published in June 2009.

Some people I spoke to responded by saying they have missed the boat and lamented that they should have bought some units when it was 10c.  I would tell them that I started buying at 13c, not 10c, and I am still buying today.  Why? The fundamentals are still very compelling and the charts look good.

Related posts:
Passive income with high yields: Saizen REIT.
Buy Japanese real estate.
Saizen REIT: Long-term buy.
Saizen REIT: A symmetrical triangle?