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TheStreet Open House

Bullish Outlook Still Prevails for Japan Despite Bearish Monthly Indicator

NEW YORK (TheStreet) -- Although core machinery orders are expected to fall by 1.4% in September after a strong gain in August, analysts are still positive about the economic recovery in Japan due to improving company profits and sentiment.

Despite the predicted monthly decline, analysts expect core orders to be up for the second consecutive quarter. In a statement from Dai-ichi Life Research Institute regarding its polling of 24 analysts, it was noted, "The core orders probably fell in September as reaction to a big gain in the previous month, but they remain in a rising trend. Machinery orders, a leading indicator of capital spending, is expected to move in an uptrend due to improvement in corporate and sentiment."

Should that transpire, it would be another sign that the reflationary policies of Prime Minister Shinzo Abe of boosting demand and exports with quantitative easing measures that have weakened the yen are working. Japan's economic growth has outpaced that for other G7 nations this year.

Another sign of increasing demand in Japan is a recent business poll is that wholesale prices are expected to have increased 2.5% in October from a year earlier, accelerating from a 2.3% rise in the previous month.

A bullish outlook on the island nation was the foundation for a speech in late October at "The Invest for Kids" conference in Chicago by Dinakar Singh, founder of TBG, a hedge fund with $6 billion in assets under management. Of the 30 positions held by TBG, six are Japanese stocks, Singh stated. In his remarks, he was particularly bullish about Hitachi (HTHIY).

Singh was positive on Hitachi as he contends the market is characterizing the stock wrong as a consumer electronics firm. According to Singh, Hitachi is now an industrial equipment company, much like Emerson Electric (EMR) and Phillips (PHG). Hitachi should be trading at the price-to-earnings ratios of Emerson Electric (32) or Phillips (41), rather than far below the market average of around 20 at less than 15, currently.

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