Thursday, March 24, 2011

Crisis in Japan Spurs U.S. Investors to Buy the Nikkei


Americans are, in general, a pretty optimistic people.

Maybe it's the fact that most of our ancestors left their native lands for the U.S. in search of a better life. Or maybe it's the fact that most of the major wars that have occurred over our country's history have largely occurred outside of our shores.

Whatever.

Here's a recent example:

Japan is a difficult place to be right now, to put it mildly:

  • Radiation concerns have now spread to Tokyo, where citizens are being advised to avoid tap water for their infants;
  • The nuclear plants in Northern Japan continue to verge on the edge of disaster, although there has been some encouraging news recently;
  • The Japanese government just doubled its estimate of the cost of rebuilding the infrastructure lost in the tsunami, to almost 4% of GDP;
  • Rolling blackouts are now expected to the norm through at least the summer months;
  • And the death toll keeps rising.
So what's the reaction of U.S. investors?

Buy stocks, of course!

From Warren Buffett to the smallest retail investor, there seems to be the perception in this country that Japan is the overseas market of choice. As this morning's New York Times explains:

Even as the aftershocks from the earthquake pushed financial markets sharply lower last week, American investors poured $1.2 billion into Japanese equity exchange-traded funds, or E.T.F.’s., according to new data. It was the biggest weekly inflow on record, a trend suggesting that some investors are already betting that the crisis may be just an interruption to a market rally.

U.S. Investors Pour Money Into Japanese E.T.F.’s - NYTimes.com

It will be interesting to see how this Japanese stock market interest works out.

Before the tsunami there had been some discussion that Japan was an interesting investment idea mostly based on its low relative valuation, so perhaps the U.S. investors' collective instincts are correct.

On the other hand, I suspect that patience and a long-term investment horizon will also be required to make Japanese stocks work well for U.S. investor - and we Americans are not known for our patience.