With foreign companies increasing their presence in Japan’s retail industry, the indications are that the one of the worst-performing stock groups in the last two years is poised for a rebound, says Yasuda Asset Management Co.’s Hiroshi Chano.
The Italian fashion house Giorgio Armani SpA opened a flagship store in Tokyo’s Ginza district last week, while Wal- Mart Stores Inc., the world’s biggest retailer, said last month it will take full control of supermarket and discount store operator Seiyu Ltd.
“The fact that these foreign companies and brands are moving into Japan is a signal that there are attractive investment opportunities in the retail area,” said Chano, who helps oversee $7.8 billion as chief investment officer at Yasuda.
The Topix Retail Trade Index has slumped 37 percent since reaching a five-year high in January 2006 as household spending faltered and wages failed to increase. That was the second-worst performance among the 33 industry groups included in the broad gauge. The Topix lost 11 percent during the same period.
Japan’s economy expanded at an annualized 2.6 percent pace last quarter, the government said, after a contraction of 1.6 percent in the previous three months. Consumer spending increased 0.3 percent, compared with a 0.2 percent climb in the second quarter.
“Spending is really not all that bad,” Chano said. “All of the negative factors that helped drag down retailers now seem to be reflected in share prices.”
The strengthening yen may be another reason to favor domestic retail stocks over exporters, Chano said. Lehman Brothers Holdings Inc. and Deutsche Bank AG are forecasting the yen will rise to as high as 100 versus the dollar next year, damping earnings for companies with sales abroad.
Mitsui & Co., Japan’s second-largest trading company, gets the largest proportion of revenue from its consumer services division, which includes apparel. J. Front Retailing Co., Japan’s largest department store operator, opened a new store at Tokyo Station this month.