Yahoo Finance Must-Know Outlooks: Japan, Natural Gas, and E-Commerce
Investing in Companies—Not Countries
Q. What’s your outlook for natural gas?
A. Frank: Transportation vehicles (like trucks) in the United States are beginning to use a combination of diesel and natural gas, which lowers costs. Truck stops across the country already have natural-gas stations. Buses can use it too, and it’s not as polluting. Transportation can certainly benefit from natural gas, whose distribution has the potential to increase. But I think the electric car will be the dominant, winner-take-all technology in the next ten to 20 years—and we’re already on a migratory path toward that point.
Q. By and large, e-commerce companies have not performed well over the last year. What’s driving this trend—and how is Alibaba, the Chinese e-commerce giant, any different?
A. Randy: The long-term profitability of the e-commerce sector is debatable, but Alibaba is a unique kind of company, in my opinion, because the development of e-commerce in China is fundamentally different from how e-commerce emerged in the United States. US e-commerce began in earnest about 15 years ago, and it was competing with very established brick-and-mortar competitors of scale. It took the last 15 years to cannibalize the likes of Sears, K-Mart, Best Buy, and Radio Shack because these companies have a 50-year-old brand with real estate in every major metropolitan area. But Alibaba isn’t competing with organized retail in the same way. Yes, there was organized retail in China before Alibaba, but not to the same extent as there had been in the developed world before the introduction of e-commerce. So, Alibaba—and e-commerce in general—has a chance to become the first major organized retail network in China. This phenomenon hasn’t happened anywhere else in the world. I view Alibaba as something akin to Sears during World War II that will obtain the lion’s share of organized retail in China. It would be foolhardy of anyone to launch a national chain of brick-and-mortar stores to compete with an already profitable e-commerce company valued at $200 billion.
Q. What’s your economic outlook on Japan?
A. Rajeev: Japan’s economic recovery under Prime Minister Shinzo Abe has been through fits and starts.
There was the Bank of Japan’s monetary stimulus in October in an effort to escape deflation. But now there’s concern about the government imposing another consumption tax, which could hold back the recovery. I don’t think a consumption tax will be levied anytime soon, but I think it’s very important that Abe’s economic policy continue for Japan to fully recover. I also believe that the business restructuring that’s going on in Japan is extraordinary and will yield results in the very short term.
Market Realist – Japan has slumped into recession, so what’s next?
The Japanese economy shrank 0.2% in 3Q15—the same as an upwardly revised 0.2% drop in the previous period. Its GDP shrank for the second straight quarter. A rebound in exports wasn’t able to offset a fall in capital expenditure. It seems that monetary easing has had a minimal effect on the economy. The hike in the consumption tax from 5% to 8% in 2Q14 has affected the economy.
Fiscal stimulus—the second arrow of the three-pronged Abenomics—will only add to Japan’s already massive sovereign debt, which is now ~240% of its GDP. Japan, an export-oriented economy, depends on exports growth. A slowdown in China—which is one of Japan’s major trade partners—is also likely to affect growth in Japan. All these factors mean that Japan is likely to see deflationary pressures for a while.
Read What Slow Global Growth Means for Portfolios for more on how to position your portfolio.
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