Japan Posts an Economic Surprise

"Japan's economy grew faster than economists estimated last quarter as exports to Asia and emerging markets helped the nation weather the U.S. slowdown" – Bloomberg

I did a major double-take when I read this lead-sentence from Bloomberg news last night.

I had just returned to my hotel room after a full day of exciting and very informative presentations at the Total Wealth Symposium here in Panama. Browsing online through my usual news sources – I couldn’t believe my eyes when I ran across this story.

That’s because just a few hours before this story was published online by Bloomberg, I spoke pretty much these same exact words in my afternoon workshop presentation here in Panama. So, was there a Bloomberg reporter sitting in the back of the conference room? I guess not, just one of those eerie coincidences… if you believe in that sort of thing.

As long-time readers of this blog know all too well, I’ve been very bullish on Japan since I first began buying this undervalued market (too early) last year. So the news of Japan’s better than expected first quarter GDP report was good-reading indeed!

Jason Clenfield, who actually DID write this story for Bloomberg (not me), does a great job (using some very familiar words), so I’ll let his words do some more talking…

“Gross domestic product expanded an annualized 3.3 percent in the three months ended March 31” – that was far better than economists had forecast but didn’t surprise me. The reason for this positive growth surprise: “A surge in shipments to emerging markets kept last quarter's growth above the average 2.1 percent of the past five years, even as exports to the U.S. fell for the quarter.”

As I have been pointing out for quite some time – and repeated again today for conference attendees here in Panama – Japan’s patterns of trade have changed – for the better. This is leading to much faster growth for Japan’s economy in the face of a sharp slowdown in the U.S. and Eurozone.

For the benefit of those of you keeping score at home, the U.S. economy expanded just 0.6% last quarter. Europe actually “beat” expectations… with growth of 0.7% last quarter… wow, that’s some “surprise”!

This graph clearly shows that Japan’s “best customers” in terms of export trade also happen to be among the world’s fastest growing economies – right in Japan’s back-yard – namely emerging Asia.

This trend goes back further, but just since 2000, Japan’s exports to the U.S. (as a % of total exports) have fallen from above 30% then… to just over 20% today. Exports to Europe have also declined as a share of Japan’s total.

So who’s picking up the slack?  Emerging Asia is importing more goods from Japan than ever before, led by China. Japan’s exports to China since 2000 have jumped from mid-single digits then, to about 15% now. Emerging Asia as a whole (including China) now accounts for nearly HALF of Japan’s total overseas shipments.

The entire Asia-Pacific region is becoming a fast-growing – and importantly – self-sustaining economic block… and Japan is benefiting in a very big way. Oh, and it just happens to be the world’s MOST undervalued major market too!

These are two very key factors in favor of higher Japanese share prices… at last.