Saturday, 1 March 2014

My Next Big Investment Idea - Saizen REIT

Before I talk about this big investment idea of mine, I just want all my readers to know that I have invested quite heavily into Saizen REIT, which has taken more than 40% of my portfolio and my investment idea is based on more macroeconomic factors rather than micro analysis (company analysis). In fact, with several efficient earning periods, the company is looking more viable and sustainable than before and that is why I will not touch on it.

Japan right now is going through exciting economic changes, through the implementation of Abenomics, which includes revamping of the whole economy based on 3 strategies:
  1. Fiscal Stimulus
  2. Monetary Easing
  3. Structural Reforms
From last year to this current period, the Japanese Yen has depreciated against most major currencies by at least 20% in a bid to boost exports, spur investments and make the economy more viable. For those of you who have not learnt about the Japanese economy before, the economy has been experiencing deflation for the past 2 decades due to an asset price boom and eventual burst which left the Nikkei trading around 20% to 40% of its initial high in late 1989. However, since the implementation of Abenomics, there are signs that the Japanese economy is picking up again.

The country is also trying to push for inflation which will eventually strengthen its currency and make Japanese economy strong again. It all boils down to market expectations on whether the Japanese economy can experience inflation and if it does, asset prices, wages and general price levels are going to rise. With that, the economy will strengthen and also draws more foreign direct investments from other economies in the world. Even though there was one of the worst negative trade balance in January due to high import bills (through the use of petroleum to meet its energy demand), the Japanese exports market is definitely improving.

Next, there is a worry that the Japanese government might not be able to meet its debt obligations. However, the Japanese government has one of the largest foreign reserves in the world and all their debts are public debts, to the people of Japan. Through the increase of consumption taxes (5% to 8%) this April 2014, this might help to balance their fiscal deficits and save for future government expenditure or expenses. If the Japanese economy does improve, this will also create a natural loop that drives more revenue for the government which will actually help them to meet their public debt obligations, especially when combined with the effects of a cheap Yen.

In addition, successful restructuring of the economy will also improve the Japanese economy. However, plans in this area remains vague. In fact, even though the country experienced a nuclear tragedy in 2011, the country's demand for energy should be compensated through the use of nuclear energy as continual usage of petroleum is actually putting a strain on the economy. One of the way for Japanese economy to improve is to be self reliant for its energy consumption to a certain degree so that they can balance their trade balance, and use the surpluses to restructure the economy.

In conclusion, if Abenomics worked, this temporary depreciation of the Yen is actually a crucial step in the restructuring the Japanese economy. In fact, if it worked, it would not be surprising to see Japan becoming one of the biggest economic giant in the world. Lets look at it this way, even after 20 years of deflation, the Japanese economy is still a crucial component in global trade. Abenomics has succeeded to a certain degree, and I personally believe that it is going to work, and if it works, asset prices will be higher once again, and we will see domestic inflation which actually translates into better yields and a higher asset value for Japanese properties, not to mention that the Japanese Yen will eventually strengthen once again.

This brings only one logical conclusion: Strong Buy on Saizen REIT.

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