🇯🇵 Japan's economy just keeps shrinking

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Today's big stories

Japan’s economy shrank by more than expected last quarter, as shortages put the brakes on spending
Your favorite exchange-traded funds might not be all they're cracked up to be – Read Now
Tyson Foods reported better-than-expected earnings as you pay more for prime cuts

Road Rage

What’s Going On Here?

Data out on Monday showed the Japanese economy shrank yet again last quarter, and its chip-hungry carmakers aren’t exactly helping the country go places.

What Does This Mean?

Japan’s economy was 0.8% smaller last quarter than it was the quarter before – a much steeper drop-off than the 0.2% economists were expecting (tweet this). There’s a couple of reasons for that: rising coronavirus cases discouraged shoppers from getting out and about, while supply chain constraints kept factories from firing on all cylinders.

But this isn’t a first – or even a second – for Japan, whose economy has now shrunk for five of the last eight quarters. Now, then, the pressure’s mounting on the country’s new prime minister to get things back on track. His idea: offer households and small businesses cash handouts, in hopes it’ll encourage them to spend more. Still, economists are skeptical: the issue isn’t that the Japanese don’t have money to spend, it’s that they don’t seem particularly fussed about spending it.

Why Should I Care?

The bigger picture: If you can’t buy chips, make chips.
Monday’s data also showed that Japanese factory production slowed down last quarter, as manufacturers like Toyota and Honda continue to wrestle – in a padded thong, presumably – with chip shortages. Good thing, then, that the Japanese government just unveiled plans to expand the country’s chipmaking industry, with the goal of tripling the sector’s revenue by 2030.

For you personally: How about a Japanese vacation?
A newly chip-boosted manufacturing industry could work wonders on Japan’s economic growth and, by extension, its stocks. That, at a time when they’re looking relatively cheap: their forward price-to-earnings ratio – that is, their current value relative to 2022's forecasted profits – is 30% lower than that of US stocks. That might be why Morgan Stanley thinks it’s time you head to the Land of the Rising Sun, recommending over the weekend that you swap your American stocks for Japanese ones.

You might also like: How to profit from Japan’s cheap-looking stocks.

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Analyst Take

Are Your Favorite ETFs All They’re Cracked Up To Be?

Carl Hazeley, Analyst

What’s Going On Here?

Last week, thousands of Finimizers told us via the Finimize Groups which exchange-traded funds (ETFs) they’re most excited about.

And you’re getting a lot right: you’ve cottoned on to a way to profit from the EV boom without simply backing the many, many EV-making hopefuls out there.

But you’re arguably missing a trick too: one of your favorite ETFs, for example, actually overlaps with far cheaper funds that cover much the same ground.

Cynically, that particular ETF is just a marketing ploy… and it seems to be working.

So that’s today’s Insight: which ETFs you’re big fans of, and which ETFs you potentially shouldn’t be.

Read or listen to the Insight here

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Disclaimer

Capital at risk and past performance not indicative or a guarantee of future results. The performance is based on the 12 months to 25 August 2021. The portfolios were established on 21 August 2020.

Adventurous: +25.20 % (benchmark: 17.43 %)

Balanced: +15.75 % (benchmark: 10.10 %)

Cautious: +6.57 % (benchmark: 3.03 %)

Respective benchmarks based on comparative portfolio composition data using MSCI World and the Barclays Global Aggregated Bond Indices. For comparative purposes, the average return of the benchmark net of fees over the last 10 years is 5.85%, 8.05% and 10.21% respectively for the Cautious, Balanced and Adventurous portfolios.

Performance is stated net of fees, prior to the deduction of tax. Tax treatment depends on the individual circumstances of each client and may be subject to change in future.