David Fuller's view Starting with our macro view - bullish of most stock markets which were completing bases following a successful invasion of Iraq - the contrarian play was serial underperformer Japan, which the clients wanted to discuss; the sector was bombed-out Japanese banks, the favourite of which was UFJ Holdings. I wrote about this on return to London for the May 2003 issue of Fullermoney (we were still in our pre-fully online hardcopy days) and I then bought UFJ for my personal long-term investment portfolio, something that I probably would not have done had I not made the consultancy trip. A number of like-minded subscribers also participated, as I recall.

Fortunately, UFJ soared, doubling and tripling in the process. I then sold too soon but UFJ continued to rise before experiencing a lengthy consolidation and then doubling again. You can see some of the chart action in this link from 3rd June 2004. The big boys in Monaco made another fortune in UFJ, which has subsequently been absorbed by further consolidations within Japan's banking sector.


Why the talk of déjà vu all over again? Fullermoney has often cited the lengthy base formation development shown by the Topix Banks Index (p&f, monthly, weekly & daily). Eoin has repeatedly pointed out the upward dynamics within this (Type-3 (churning, time and size) base as taught at The Chart Seminar.


Today's upward dynamic for the Topix Banks Index has cleared lateral resistance following a successful test of the March 2009 trough. This was also the region of the 2003 lows. Nothing is certain in markets but this looks to me like one of the best recovery candidates in the markets, and it won't even complete the base until it sustains a move above the June 2009 rally high.

How does one play the Japanese banking sector?

This graphic from Bloomberg lists the best and worst performers among Japanese bank shares this year. One of Fullermoney's most important 'rules of thumb' is that early leaders often continue to outperform for most of the cycle. Therefore I personally am much more interested in the top half of this list. Here are weekly charts for the top four: Aozora (post-consolidation history), Resona, Sapporo Hokuyo and Sumitomo Trust. I will probably buy at least one of these before long, via Japan rather than the thinly-traded ADRs.

There are two ETF trackers for Japanese banks listed in Japan: Nomura Topix Banks Exchange ETF and Daiwa Topix Banks ETF. Here also I would prefer to buy in Japan, via Tony Smith at Brewin Dolphin Securities in the UK, rather than opt for a thinly-traded ADR.

Lastly, the Asia & Asia Pacific - Funds ITs & ETFs section of the Chart Library contains numerous investment vehicles for Japan and Asia Pacific generally, many of which were recommended for inclusion by your fellow subscribers. I have a preference for comparatively low-cost investment trusts (closed-end funds) and JPMorgan runs two of those listed in the UK, which are sterling-denominated: JPMorgan Japan Investment Trust, which contains several banks in its top-10 holdings, and JPMorgan Japan Smaller Companies Investment Trust. I may invest in either one or both of these.