Why UK shares might slump
So the number-crunchers have delivered the charts on the top-performing funds of 2005.
After languishing for more than a decade, commentators are talking up the latest recovery in Japan, insisting it's not yet another 'dead-cat bounce'. Tokyo's Nikkei has rallied 41% in the second-half of the year, the biggest half-year gain since the American occupation was offiicially ended in 1952. The yearly gain is likely to be 43%, nearly beating a 44% gain in 1984.
That's why the Melchior Japan Opportunities was able to deliver the best performance for a UK-based fund in 2005 - a return of 81%.
Japanese shares were in a decade-long decline due to a spiral of falling prices. The country was locked in deflation which meant companies couldn't hike their prices or, therefore, their profits. However, recent figures showed year-on-year prices rising again for the first time in more than two years.
This is all great news for the Japanese - but it could mean bad news for the UK and Western Europe.
I wrote a story several years ago where a US financial expert, Harry S Dent, had exactly mapped Japan's decline against the changes in its demographics. The theory was that its ageing population was several decades ahead of economies in Europe and the US but that a recovery would begin in the second half of the 'Noughties'. He also suggested booming UK and US stock markets would go into reverse as our populations reached the same point as Japan's a decade earlier.
It's all gloomy stuff - but the good news is that the theory has failed in one or two areas. In the late Nineties he was predicting the US economy would power ahead unabated in the 'Roaring 2000s' (the title of his book). I called him two years ago in Texas, post the dotcom slump, for an explanation. The company didn't want to talk.
I presume he's now crowing about the sustained pick-up in Japan (he's certainly got a special report out called 'What happened on the way to the roaring 2000s'). It's all interesting stuff but comes with a simple warning - beware of soothsayers.
P.S. Here's the original story - Last of the big spenders?
RE your comments pertaining to the 41% rally of the Nikkei index in the 2nd half of 2006.
Via Merchant Investors' self select range of funds, I have been in Framlington Japan spanning this period, and more, but it's certainly not been my good fortune to see any rise in the unit price at all !!
On the 23rd June on the M.I. list the bid price was 305.2 pence. On the 13th December it was 290.0 pence, representing a loss over this period. I have watched the Nikkei index go up and up, whilst my investment (ultimately with Framlington) has wandered aimlessly about, which leaves me wondering what the hell is going on !!
It would seem I have been in the right place at the right time, but it's still not happening for me. I feel cheated.
Have you any ideas? Is the currency working against me? Is it charges? Surely not to that extent !!
PLEASE ANSWER.
Posted by: Eddie Cocks | January 07, 2007 at 07:04 PM