What stocks to invest in
Abenomics in brief
Prime Minister Shinzo Abe’s well-known plan for reinvigorating the Japanese economy has three “arrows.” The first two are large government deficit spending and ultra-loose money policy, which were designed to buy time for structural reform of Japanese industry. The two have had toxic side effects: they have mortgaged Japan’s future with lots of new government debt and, through the currency depreciation they engendered, have reduced national wealth by a third.
Regular readers will know that from the outset I’ve believed that Japanese corporations won’t restructure voluntarily and that the Tokyo government had no interest in forcing corporate leaders to do so. In other words, Abenomics a very expensive farce, that had no chance to succeed.
the Sharp case
The latest case in point is Sharp, a heavily indebted chronic money-loser which is in the process of being nationalized by state-owned Innovation Corporate Network of Japan (ICNJ). ICNJ is offering shareholders a total of $2.5 billion for their shares and the company a continuing supply of the opium of state support.
Hon Hai Precision, a Taiwanese company best known in the US as Apple supplier Foxconn, has bid twice that figure. It has pledged to keep all Japanese employees and to transfer its management and manufacturing technology into Sharp. As I’m writing this, news is breaking that Hon Hai is about to sweeten its offer by pledging to invest a minimum of $850 million in Sharp operations after acquiring it.
the board decision…
So, which will the board of Sharp choose:
–twice the money for shareholders plus an infusion of new technology and world-class manufacturing management?, or
–what’s behind the curtain marked ICNJ?
Although no final decision has been made, all the press leaks indicate that Sharp is going to choose ICNJ–and that the Tokyo government is encouraging the company to do so.
a wake-up call?
The Financial Times seems to believe that the Sharp case will prove to be the ah-ha moment that will cause foreign investors to understand that Mr. Abe never intended to fire the crucial third arrow of Abenomics. It thinks an outflow of foreign capital will follow this realization. For the sake of Japanese citizens who are bearing the burden of the first two arrows, I hope the FT is wrong. My private reaction is to ask why it’s taking foreigners so long to smell the coffee.
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