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April 21, 2005

The Coming Boom in Japan: Nippon Observer Discovers Value in Firms Serving Home Market

By Kathryn M. Welling

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  • The Coming Boom in Japan: Nippon Observer Discovers Value in Firms Serving Home Market
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Sid Klein wasn't the only one who saw the Japanese market's dramatic fall from grace. But he was one of a very few. While the consensus worried that Japan Inc. was about to devour the world, Sid Klein was was telling my old Barron's colleague, Peter DuBois, that the Tokyo market was heading for a major crack-up. But Sid, who publishes the Japan Asia Investments letter from Montreal, isn't the sort to rest on his laurels. Sid has been finding more to like there ever since this new century dawned. Not the usual-suspect global export behemoths, mind you. The stocks that are going to erupt on the upside, Sid has been telling anyone who'll listen, are what he calls "Japanese domestic demand-oriented value stocks."

Granted, the Japanese market, like the U.S. variety, was a hostile environment until 2003. The Nikkei took it on the chin right along with the S&P and Nasdaq-but Sid's Japanese domestic demand-oriented value stocks, by and large, bucked that trend and held their ground between 2000 and the end of 2003. Last year, they did considerably better than that, as the markets recovered. This year, they've come out of the gate strong again. Indeed, Sid is convinced that many of these "small fry" have barely begun to live up to their potential.

You're still a bull on Japanese stocks, I take it, but only selectively here, Sid?

That's right. First of all, I have my own proprietary indicators for what I call "value," which is why, as a group, the stocks I've recommended - and which bottomed in 2000 - haven't revisited those levels. I focus on companies that primarily do business within Japan or with the rest of Asia. What I've identified as "domestic demand-oriented value stocks." These are stocks trading at totally washed-out valuations. Meanwhile, money is more and more flowing into Japanese investments. And the reason is clear: When the Dow goes from 11,000 to 14,000, these are the sorts of issues that will soar by 70 percent-100 percent.

Really? I don't suppose you know exactly when the Dow will accomplish that feat or when domestic demand will be resurrected from the dead in Japan? It's been pretty much given up for dead, you know.