Some Brightness for Japan in 2010     

• While we see a good possibility of the US market seeing a meaningful interim correction as the Fed moves cautiously toward exiting from unprecedented growth in liquidity (monetary growth) and eventually tighter interest rates. The economic recovery, if it is sustainable, should eventually provide corporate earnings fundamental support for modest, one-digit gains in 2010.
• Relatively speaking, Japan is now due for a re-appraisal, especially if JPY weakens as we suspect in 2010 with the unwinding of the USD carry trade. Yen weakness could produce a decent, broadly based, "catch-up" rally in Japanese equities centering on the currency sensitive export sector.
• But the rising tide will not equally lift all boats. In 2009, the Nikkei 225 managed a 19% gain, while the broader market cap weighted Topix and small cap JASDAQ saw gains of only 5.6% and 0.3% respectively. In other words, only those companies with meaningful global businesses will benefit, as Japan’s domestic economy could well remain burdened by weak consumption, excessive debt and the lack of significant restructuring.
• In other words, those companies who successfully orient what has heretofore been successful domestic business models or unique products to structural growth in rapidly urbanizing Asian markets are due for a major investor re-appraisal of their growth prospects, even as their domestic-only peers remain plagued by weak demand and pricing pressures.
• In each industry, globalization should continue to cause major realignment, beginning with stock market capitalization, as investors migrate to the new "global demand" blue chips away from old blue chips that refuse to or cannot adapt to the new reality of globalization. This should continue to cause increasing polarization among individual companies.
• Japan still has the prerequisites for sustainable growth. What is required is an embracing and positive response to the new globalization instead of a more xenophobic, inward looking approach i.e., a change in mindset--from individual companies as well as the political and administrative authorities.

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