If your interest is perked by the rise in the Nikkei in 2011 (up 3.49% year-to-date), you might be better off focusing on one portion Japan’s economy than another, according to Societe Generale’s Takuji Okubo.
The latest corporate profit data out of the country indicates that, while the manufacturing sector (like Sony) is lagging, the country’s non-manufacturing sector is booming. The reason?
From Takuji Okubo:
The recovery of non-manufacturers’ profits is remarkable, as their sales are still 11% off the pre-recession peak in 1Q 2007. On the other hand, manufacturers’ profits are still almost 40% below the pre-recession peak. Sales recovered to 83% of the pre-recession peak, but with the disadvantageous exchange rate (JPYUSD was at 117 on average in 2007), manufacturers are still having a hard time regaining profitability.
While the manufacturing sector should do better as global demand picks up this year, it’s the strength of the yen holding back the manufacturing sector. So if you want to get in on the now conventional Japan trade, the best path may not be by just buying the index.
Photo: Societe Generale