Go back about 13 years, and Japan was the place to invest. Its
markets were hot, its economy was soaring, and everyone in the
United States was trying to learn as much as they could about how
to manage their businesses Japanese-style. Then their bubble burst,
stock prices plummeted and a recession hit. Today, however,
corporate Japan is in the midst of a turnaround. And whenever
there's change, the possibility for opportunities exists.
Depending on your point of view, Japan is either a country still
encumbered with economic burdens, or one in which things are slowly
but steadily changing. On the economic front, household spending
was at a 19-year low in February, new car sales dropped 7.2 percent
in March, and unemployment hit a high of 4.8 percent that same
month, according to the latest available statistics from InvesTech
Research.
Then there's the Nikkei, Japan's stock index. While it
hasn't shown dazzling results either, some of its stocks have,
and enough so that Japanese stock funds have begun to pick up
steam. By July 31, the average Japanese fund had a year-to-date
gain of more than 54.38 percent, according to Lipper Inc. And over
the past year, the average was up approximately 60.88 percent.
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Seung Kwak is lead portfolio manager for The Japan Fund, one of
the oldest Japanese funds around. Opened in 1962, this fund's
long history has weathered many storms. Through July 31, it was up
52.34 percent; for the past 12 months ending July 31, it gained
75.03 percent.
Ask Kwak what's happening in the Japanese market, and
he'll tell you that even though corporate earnings for fiscal
year 1999 are projecting a modest decline, profits are expected to
increase. How can that be? By reducing costs through restructuring,
Kwak says, companies can improve their margins.
The kind of corporate restructuring going on in Japan these days
is much different from the post-war business-as-usual practices
where, among other things, Japanese employees were corporate
employees for life. Today, it's Western-style restructuring.
That means companies are beginning to close production facilities,
get rid of their unprofitable businesses and reduce their work
force through schemes like voluntary retirement.
Look at Kwak's investment style, and you'll find a
bottom-up stock picker who has been a part of The Japan Fund's
team since 1989 and its lead manager since 1994. When evaluating
companies, he tries to look at where they'll be three to five
years in. NTT Mobile Communication Network Inc., the fund's
second-largest holding, is an example of a company he sees with
future promise. This company has more than a 50 percent market
share in the Japanese cellular market and is the world leader in
wireless data transmission, says Kwak.
The Japan Fund isn't for the fainthearted--or the
shortsighted, either. Experts estimate it could be years before
Japan's economy fully recovers. But if you like taking chances,
need a little Japanese exposure in your portfolio and don't
mind market volatility, call for a prospectus. If nothing else,
it's worth a read.
Dian Vujovich is a nationally syndicated mutual fund
columnist and author of 101 Mutual Fund FAQs (Chandler House
Press). For free educational mutual fund information, visit her Web
site, http://www.diansfundfreebies.com.
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