How Your Portfolio Can Profit From Japanese Manufacturing Growth

NEW YORK (TheStreet) -- The manufacturing sector is ready for liftoff in Europe and Japan, according to an analysis by the New York-based Economic Cycle Research Institute, which studies such matters. Even the U.S. factory sector will benefit, but most of the growth will be overseas, ECRI said.

What's more, there should be ample time for investors to get in on the action.

"A clear global industrial upturn is happening," said Lakshman Achuthan, co-founder & chief operations officer of ECRI. He's basing that assessment on data showing a current rebound in industrial production from six months ago as well as proprietary ECRI indicators pointing to a sustained upswing.

"There is a broad turnaround from the situation we saw last fall and our leading indicators have improved," he said, specifically highlighting ECRI's "global industrial growth long leading index." In the simplest terms, that metric moves up or down about 12 months ahead of changes in the real manufacturing economy. For that reason, investors and corporate planners have plenty of time to make decisions in response.

Part of the reason for the improved prospects for the industrial sector are that both Europe and Japan have benefited from weaker currencies, which make their goods cheaper to foreign buyers, Achuthan said.

The global manufacturing industry is so connected through its supply chains that when the sector in one country improves, other countries see a benefit also. So we'll likely see an uptick in the U.S. factory space, although it likely won't be quite as strong as overseas, he explains.

So what is an investor to do?

"I would prefer Japan to Europe, because Europe has a fiscal crisis playing out and it's a cloud over those stocks," said Milton Ezrati, an economist and market strategist at money management firm Lord Abbett.

He notes that Japan still produces a lot of high value-added products. Those would include cell phone components, such as the flash memory used in smart phones like Apple's  (AAPL) iPhone.

Hedging the risk that the Japanese yen will fall even further is just "too expensive" for a long-term investor seeking to take advantage of the manufacturing upturn, Ezrati said. "If you will be in and out in three months, then you can hedge," he said.

The trade deal known as the Trans Pacific Partnership could also benefit Japan in a big way, if it ever gets approved.

A reduction in U.S. tariffs on Japanese goods would leave "Japanese manufacturers better able to compete in US markets," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab.

Neither Kleintop nor Ezrati would mention specific stocks. However, companies that look well positioned for a surge in Japanese manufacturing would likely include Toyota (TM), Honda (HMC), Kobe Steel (KBSTY), Nissan (NSANY) and Mitsui & Co. (MITSY).

Or if you don't want to pick stocks, try the $1 billion Matthews Japan Fund Investor (MJFOX) or the $310 million T. Rowe Price Japan Fund (PRJPX), both of which have three Morningstar stars. Neither have a sales load.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

Elon Musk's Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Twitter Tirade Is the Dumbest Thing on Wall Street

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Time to Talk Tesla: What Happened This Week, Elon?

Time to Talk Tesla: What Happened This Week, Elon?

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy