Some Funds Ready To Buy Japanese Stocks After 16% Plunge

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Some investors say they view the 16% plunge in Tokyo shares over the past two
sessions as a buying opportunity, and are poised to snap up Japanese equities.


"While this is a human tragedy of incalculable proportions, if history is any
guide, the market reaction is overly pessimistic. We are seeing some great
companies with huge leverage to Asian growth being heavily sold and trading at
attractive valuations," said John Pearce, Chief Investment Officer for
Australia's $25.4 billion UniSuper Ltd. "We have been looking for an appropriate
entry point to build our Japanese exposure and this could be just the
opportunity."


UniSuper is one of Australia's largest superannuation funds, a type of pension
fund that invests in a broad range of assets from equities and fixed income to
real estate and private equity.


Pearce's view is shared by Barton Biggs, who co-founded $1.4 billion hedge
fund Traxis Partners L.P. after 30 years at Morgan Stanley (MS). He told The
Wall Street Journal earlier Tuesday, "I'm buying Japan right now." He said the
panic selling was "a gross overreaction."


Certainly not all managers view Japan as a buying opportunity. Some hedge fund
managers are reaping gains from bets they already made against Japan. And for
some managers, the uncertainty over Japan's nuclear crisis poses too much risk
to take the plunge into cheaper Japanese securities.


The plunge in Japanese stocks has more than reversed gains from earlier this
year.


Japan-focused hedge funds were the best country-specific performers in the
first two months of the year.


The HFRX Japan Index gained 3.38% as managers benefited from better-than-
expected Japanese corporate earnings and a strong yen, Hedge Fund Research data
showed. It also hinged on gains of as much as 6.5% in the Nikkei in the first
two months.


Japan funds' robust performance not only overshadowed the 2.98% rise among
North America-focused hedge funds, but also came as fast-growing emerging
countries showed signs of slowing down and tightening on inflationary concerns.
The HFRX India Index dropped a hefty 8.59% in January and February, while the
index for China also shed 1.05%.


And investors have been eyeing the market for quite some time.


In Deutsche Bank AG's (DB) annual alternative investment survey published
earlier this month before the earthquake, Japan was among the top four regions
expected by investors to be the best-performing this year. Among the 528
investor entities polled, including pension funds and endowments, over 20%
planned to increase their allocations to Japan.


Cameron Watt, a managing director and portfolio manager at global asset
manager BlackRock Inc. (BLK), said in an interview Tuesday Japanese companies
showed look like a better value at their current prices than they did following
the Kobe earthquake in 1995, which caused widespread devastation in the country.


"Global firms are interested in buying Japanese equities because they aren't
that expensive at 15 times long-term earnings, against the 30 times (they cost)
in 1995. Corporate balance sheets are also much stronger," said Watt, who is the
lead portfolio manager for the Funds of Alternatives for BlackRock Multi-Asset
Client Solutions. "But the negative side is the psychological impact of the
whole nuclear issue and the difficulty to have any real picture" yet how it will
be resolved.


Indeed, uncertainty over the severity of Japan's nuclear problem is causing
some managers to stay on the sideline for the time being.


"There is just not a lot of information, especially on the nuclear power
plants, and we are waiting for more news," said Nadeem Walji, President and
Chief Investment Officer of New York-based hedge fund Duma Capital Management
LLC.


Duma sold all its Japanese equities holdings Friday morning after the first
quake and now only has minor exposure to the Japanese yen.


"The yen has strengthened because of potential repatriation flows into Japan,
following a pattern similar to the aftermath of the 1995 Kobe earthquake," Walji
said. "Ultimately we expect a weakening of the yen on the back of expected
stimulative policy response by the Japanese authorities to this terrible event."


- Amy Or, Dow Jones Newswires; 212-416-3142; amy.or@dowjones.com