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Money matters: Big in Japan
Graham Macdonald
MBMG International Ltd.
One position that did not unfold as we expected last
year was our preference for Japanese equities at the expense of those in
the US. In fact, our preferred Japanese fund manager, Orbis, actually
achieved better base currency returns in their global portfolio through
their US listed shares than their Japanese ones, although that relative
over-performance was somewhat offset by the benefit derived from the
associated exposure to an appreciating yen.
We believe, however, that this is more of a timing
issue. Orbis’s company-specific research continues to conclude that
their Japanese holdings offer prospective long-term returns that are no
less attractive than those in the US but with less risk of permanent loss
of capital. Thus while Japanese shares may struggle to keep pace with
strongly rising global equity markets if there is any continuation of the
short term liquidity boom (which is looking increasingly unlikely) we
believe they will help reduce vulnerability should the global environment
for equities become less buoyant.
This is a key component in the way that investments are
evaluated at MBMG - the potential return for each unit of risk. While this
leads to some extremely complex matrices, it provides a focus on earning
superior long-term returns while minimising exposure to the risk of
permanent loss of capital.
Clearly this isn’t always straight forward - one
example that our commodities researchers have highlighted is a number of
opportunities amongst selected South African focused resource companies
(such as the gold and platinum miners) whose earnings and share prices
have been significantly impacted by the persistent strength of the South
African rand versus major international currencies. These companies
effectively earn their revenues in dollars and incur a substantial portion
of their costs in rand. As a result, the earnings of these companies are
significantly positively geared to a weaker domestic currency and several
of them can be acquired on attractive multiples assuming a more normal
level of earnings. While there is a growing consensus within South Africa
that the rand is likely to remain strong or get stronger, we do not share
this view and believe that there is risk of weakness from these levels.
With regard to Japan, two further specific examples of
this theme are detailed below:
Canon Sales, which constitutes our biggest Japanese
stock exposure, is typical of the Japanese shares we find attractive. From
a macro standpoint, shares in Canon Sales, which is the distributor in
Japan for its renowned multinational parent, Canon Inc, are favoured as
Canon Sales’ earnings have been hurt by the long-depressed Japanese
economy - at least until very recently.
By contrast, Japanese multinationals have prospered for
many years from buoyant economies outside Japan. Furthermore, the
domestically focused Canon Sales is unaffected by the strengthening yen.
Fujio Mitarai’s appointment as president of Canon Inc
in 1995 subsequently transformed that company’s profitability. At Canon
Sales, we expect President Haruo Murase’s appointment in 1999 to do
likewise, but in this case we believe the improvement in profitability is
only just beginning.
Despite the share price of Canon Sales appreciating 61%
to ฅ1,531 in the 6 months since we first acquired exposure, the
share price only now approximates the underlying tangible net asset value
per share of ฅ1,533.
Canon Sales’ balance sheet is pristine with no less
than ฅ591 per share in cash and cash equivalents net of all debt,
representing 39% of shareholders’ equity. With bank deposits in Japan
yielding zero and 3-year government bonds yielding only 0.24% pa, this 39%
of assets in net cash earns nothing.
Clearly if these excess financial assets were returned
to shareholders, return on the company’s reduced equity would nearly
double in one fell swoop.
A more reasonable expectation, now that confidence is
gradually returning to management in Japan following the traumatic
bursting of the bubble that began in 1990, is a higher dividend payout,
redeployment of excess financial assets into growing operating assets both
from internal growth and through acquisitions, perhaps some buybacks, and
no dilution from new share issues.
Western companies and their shareholders have long
benefited from such soundly implemented “financial engineering”. These
benefits still lie ahead for many cash-rich Japanese companies, including
Canon Sales, with market leaders such as the Toyota Group showing the way.
Management - conservatively we believe – expects a 5%
return on equity in 2004 which translates into a 9% return on the
remaining 61% of shareholders’ equity not in cash but actively employed
in the business. We expect earnings growth to exceed expectations as
profit margins are boosted by the transformation of Canon Sales’
important business solutions division with networked printers,
copiers/multifunctional printers and the shift to colour printing.
A small loss was realized last year with a very small
position shorting Japanese Government Bond (JGB). Although JGBs were the
worst performing of any major government bonds globally in 2004, both
Japanese long-term and short-term borrowing costs have remained lower for
longer than had been expected. In order for short JGB futures position to
provide a positive return, Japanese interest rates must rise (causing a
drop in bond prices) by a greater amount than the market had expected.
Despite the lacklustre performance of this small
position last year, we continue to hold the short JGB futures position
because of our conviction that the yields on JGBs are too low in relation
to prospective economic activity and perceived future inflation.
One reason why the JGB yields have not risen in line
with stronger economic activity is the program of continued JGB
repurchases by Japan’s central bank, which pumps cash into the system
and supports the JGB prices, in the hopes of further stimulating economic
activity through increased money supply.
The current policy stance of the Bank of Japan (BOJ) is to continue
buying back JGBs until a neutral or inflationary environment prevails.
Inflation in Japan had been negative for some years, but has been running
just shy of zero for some time now. In our opinion, the BOJ’s repurchase
program in the face of continued signs of underlying economic growth only
prolongs the eventual adjustments in bond yields needed for the new higher
levels of economic growth and inflation expectations. It should also
further increase the likelihood and magnitude of an eventual interest rate
move that will ultimately benefit the short JGB position.
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The above data and research was compiled from sources believed to be
reliable. However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above article nor
bear any responsibility for any losses achieved as a result of any actions
taken or not taken as a consequence of reading the above article. For more
information please contact Graham Macdonald on [email protected]
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Snap Shots: Looking Up, Looking Down
by Harry Flashman
 There
is a great tendency for us all to take very ‘standard’ shots. By
‘standard’, I mean from a very standard viewpoint, so we end up with
standard pictures. For example, when was the last time you took a photo
that was not taken while you were standing and looking through the
viewfinder? A long time, I am sure.
However, when you take a photo from the standard
position, you do get something that is instantly recognizable, because the
subject of the photo is presented as we normally see that subject. We look
up to see street lights, we look down to see children. All sounds boringly
obvious. But it is that ‘normal’ viewpoint that can also make your
photographs boring.
I have mentioned before that when taking photographs of
children, you should get down to be at the same level as they are. This
way you will get a much more pleasing photograph of your little bundles of
joy. However, when you are down on your knees you have also produced the
situation whereby you can get some other different shots. These are a
baby’s eye viewpoint of the world.
Looking up at everyone and everything. It is well worth
trying to take some shots of adults, or even the environment of the house.
You will be amazed at just what your infants see! You may also be
horrified when you see the dust under the computer table!
While still in the ‘looking up’ mode, when you look
higher than the ground floor shops, you may find there are some sights
well worth blazing off a couple of frames. Even just washing hanging out
can be quite noteworthy. Just try it. Remember too, that you get a
distorted shot when you tilt the camera towards the sky. Buildings appear
to lean over backwards, the trunks of trees look much more substantial
than they really are. It is a kind of exaggerated perspective effect.
Now ‘looking down’ can probably be even more
rewarding, as this is a viewpoint that you never usually try (other than
on children and lift wells). It also will present you with a kind of
‘helicopter’ view, that from that aspect alone, makes it very
different. Look at the shot used this week. This was a weekend market and
the shot was of a hat stall. You have to admit that the different
viewpoint holds your imagination, more than a standard shot would have
done.
So since helicopters are expensive to hire, you have to
start looking up first, before you can look down, and when you do this you
will find there are many roosts for photographers who are training
themselves to look at life differently. There are over-bridges, there are
observation platforms, there are even hotels and condominiums with ledges
and parapets. They are all there for you to use, after you have looked up
to find them.
What lens should you take? This is one of the rare
times when I recommend a zoom lens. From the lofty viewpoint, it is
difficult to predict what focal length you will need, and rather than
taking several lenses up to the platform with you, the zoom can do it all.
There is also the fact that if you go very high up (or
even out of the helicopter), a Skylite 1A filter does help get rid of any
altitude ‘haze’, but I would expect that most photographers already
have the 1A permanently screwed on the front of the lens, just as scratch
insurance.
It is important that as you develop your artistic eye,
you experiment with different viewpoints. Not all of them will be
successful, but some will be, and the new viewpoint can be the catalyst
for some unique art. And surely that is what many of us are trying to
achieve.
I personally believe that by applying some different viewpoints to some
traditional Thai subjects you would produce some excellent wall art that
could even have commercial possibilities. A trip around the local Wat,
looking up and looking down, would be an interesting project for all
photographers, from school age to old age. Try it this weekend (just
don’t fall!).
Modern Medicine: TB - is it still with us?
by Dr. Iain Corness, Consultant
Let us get one thing straight. Yes, TB is
still with us, yes it is a dangerous disease, and yes, several thousand people
die of the disease in Thailand. In fact, if you look at global figures, the
number is around three million world-wide. It is also highly infectious.
When you think back that 800 people died in the world from
SARS, a disease that crippled tourism world-wide (and kept newspapers in
business with the daily reports), and 3,000,000 die each year from TB, I get the
feeling that we have our priorities a little mixed. Even the latest threat to
mankind, the mutated Bird Flu (if it happens), is unlikely to claim that number
of deaths in one year, let alone every year!
TB is caused by a bug, and we have medication that can kill
it in our bodies. The medications are not new breakthroughs, but a standard
treatment therapy that has been used for decades. So why has it not worked?
Dr. James Orbinski, a past president of the Medecins Sans
Frontieres, said a couple of years ago, “In essence, tuberculosis today is a
global public health emergency. It is a curable disease and yet two billion
people are infected with mycobacterium tuberculosis. 16 million people around
the world live with active tuberculosis, and a very significant percentage of
those 16 million people are spreading tuberculosis.
“Every year, two to three million people die of
tuberculosis and the number of new cases - or the incidence of tuberculosis - is
increasing significantly. What we see today is that the incidence in the last
year alone has gone up from 8 million new cases last year to 8.3 million new
cases this year. This is quite significant. By the year 2020, the rate of spread
may increase by up to 40 percent so that 70 million people could be dead by then
and over a billion more people infected with tuberculosis. At the same time, we
are seeing the rise and spread of multi drug resistant tuberculosis (MDRTB). In
the last few years, MDRTB has been identified in over 100 countries and this is
now a major, major global public health emergency in addition to the emergency
that primary tuberculosis represents.”
He also went on to say, “Only 25 percent of people who have
tuberculosis are in active treatment programs which means that 75 percent of
people with active TB are not in active treatment programs.” With those sort
of statistics, you begin to see just why TB is getting out of hand.
Even those who have TB and are put under treatment, rarely go
through with the full course. The reason is simple. The course of treatment is
somewhere between six to nine months! Research has demonstrated that the vast
majority of people with TB will continue for two months, but after that length
of time will most likely discontinue. So we have those millions of partially
treated people who will not get better, and are capable of spreading the
disease.
For a disease that has been around for years, why are we
working with such unwieldy, and outdated therapy? When you consider that a
patient with TB is expected to take four different medications three times a
day, and keep that up for nine months, the sheer logistics becomes a problem.
Now factor in the cost. Since TB is rampant in the poor of Asia and Africa, are
they likely to be able to afford the medication for nine months? Simple answer,
No!
It is probably high time that the researchers gave us
something new, for a very old disease.
Learn to Live to Learn: Organisations for the future
with Andrew Watson
Increasingly, reflecting chaos and complexity theories
put forward by people like Keith Morrison (1998), organisations have to
deal with what can sometimes appear to be overwhelming variables, in
operational issues, infrastructure and marketing. In my view, the
capacity for an organisation to be effective, efficient and successful
can be said to largely depend on how the interests of the individual and
the organisation can be married. I propose that for all the systems,
structures, policies and procedures that one can have in place, there
will always be uncertainty. However, rather than working against the
tide of variety, organisations need to be able to embrace rather than
resist change and become adaptable and flexible, in order to become
consistent with the environment in which they exist. As Handy (1990) has
it, “If we are serious about learning and changing, we will not fight
these discontinuities.”
In a global context, it can be argued that
post-modern western centric, capitalist, market-orientated ideology has
resulted and is reflected in the ‘cult of the individual’,
characterised by demand for immediate gratification, fuelled by
communications technology.
International schools are organisations which are
often characterised as being “little different from commercial
organisations – public entrepreneurship” (Law & Glover, 2000).
What appears to me to be traditional antipathy between the worlds of
education and business, many holding that the two are irreconcilable, is
being challenged. In the Asia Pacific region, where tiger economies
envelop international schools, fault lines between business and
education have caused massive and regular tremors.
In South East Asia, sole proprietors abound and often
appear to desire hands-on experience in schools, especially over
financial matters. For many, it seems proper to take some personal
profit from an investment enterprise, whatever the nature of it. For the
‘farang’, whose supposed expertise has been specifically targeted to
run an organisation such as an international school, ‘profit’ and
all that goes with it, is often anathema.
Of course, there is often an assumption of expertise
in the ‘farang’, which is by no means proven or earned. Witness
around the world many dubious recruitment and appointment procedures, as
people grab the chance to make a quick buck for themselves and their
mates, whilst appraisal or accountability systems have yet to be put in
place.
As I write, a well known English public school and
its Thai sister are about to part company, unable to accommodate each
other’s views. As Derek Malpass, a well known figure in international
education, asserts, “The lack of understanding of the different but
complementary roles of the board and the head of school goes to the
heart of school management problems.” When you add cultural,
historical and colonial belief systems and expectations to the melting
pot, perhaps we shouldn’t be surprised that ‘misunderstandings’
proliferate.
In this ‘Brave New World’ of Thailand, many
international schools continue to exhibit the wide variety of
characteristics which might be expected of small businesses. Except that
terms like ‘performance related pay’ and ‘appraisal’ seem to be
culturally inadmissible, especially in institutions where
self-preservation and restrictive work practices are a hangover from
yesteryear. Whilst the worlds of Asian business and Western humanist
education reconcile their differences, something of a vacuum of
understanding exists, which might explain the principled departures of
some high profile heads of school over the last eighteen months or so.
Personally, I’m all for the further integration of
good business practice in education, because I think that good business
practice represents good organisational practice. And good
organisational practice represents your best chance of achieving the
objective which surely all organisations share: to be efficient and
effective.
If organisations are to survive in an increasingly
‘competitively conscious’ environment, they need to embrace the
concept of continuous change by adopting a philosophy of flexibility,
responsiveness and focus, which through achieving the organisation’s
objectives, also recognises the rights and serves the needs of the
individuals within the organisation. This represents not only good
business sense but is good educational practice. It’s what we preach,
it’s what we teach.
Coherent, transparent and well designed systems and
policies should provide the structural strength on which to build
flexible plans which reflect the transient nature of the interest
groups. Systems and structures are like the skeleton on which the flesh
can move, like the first stage of composition in art, the division of
space, upon which colour and image are built. Philip Crosby (1980)
maintains that, “When it comes to organising a functional discipline
in a company… it is essential that each function be established in
some orderly way that can be measured and controlled.” Systems,
policies and structures in place, the organisation can concentrate on
the pursuit of quality in delivery of their product. Research
illustrates that ‘High expectations’ (Sammons, Hillman and
Mortimore, 1995) are top of the list of features associated with
effective schools.
I think Charles Handy is correct when he writes that
organisations will have to offer a continuing series of good roles if
they want to keep their best people. A promise of medical insurance or
contract-less promises will not be enough for the best of the portfolio
careerists. They will want a chance to develop in their professional
fields, as well as the money they have earned, can earn or are owed and
they will move to wherever they can find professional fulfilment.
[email protected]
Next week: Journey’s End
 Heart to Heart with Hillary
Dear Hillary,
Dear old Pater was delighted to find so many ladies in waiting as he
whirdled forth with his shooting-stick. “There they were, woggling
their grummitts,” chuckled Pater, “My splod was fairly bogled!”
What Pater needs is a decent truss shop and a handmaiden, e.g., a Nok,
Lek or Britney to “take care he.” Suggestions please Hillary.
Mistersingha
Dear Mistersingha,
Suggestions? It’s too late for you and your father, I’m afraid. He
should have trussed up and his dongel cut off before you were born. Then
we would not have had to put up with your outpourings of lamentable
value and lacking in any brillig thoughts. While I remember, whatever
happened to the champagne and chocolates that you assured me were on
their way three years ago, or was it even longer?
Dear Hillary,
I have been told that my Thai children cannot inherit my estate if I
die. Their mother and I have been together for ten years, but we have
never been married as I have a wife and grown up children back home.
What is the situation as regards my Thai children? With what my friends
are telling me, I am worried that in the event of my dying (I am 66 at
present and the children are 8, 6 and 4) they will be left with nothing.
I don’t have much, but the UK family is all grown up and can take care
of themselves. Have you any guidance, Hillary?
Foot in the Grave
Dear Foot in the Grave,
Take it out! Not yet, Petal. Not yet! There are a few things you have to
do before you clamber in. First, have you made a will in Thailand? If
you have not, then your family in the UK could have certain rights to
your estate, which could out-rank your Thai children’s rights.
There’s nothing like a good funeral to get family members scratching
each other’s eyes out! On both sides of the world. To protect your
Thai children, see an accredited Thai lawyer who will register your will
in English and in Thai. If you really are that close to shuffling off
then do it today! For that matter, do it today anyway - you might get
run over by one of our multitudinous busses. The British embassy can
advise you too. I congratulate you on protecting the welfare and future
of your new family.
Dear Hillary,
This is a home decor problem, not a broken heart problem, so perhaps
it’s something different for you. We are looking at buying some
furniture for the bedroom, but when we go to the store and look at what
is there, they tell us that we cannot take the actual wardrobe that we
see there in the shop and want, as it comes in a kit form. I am hopeless
at this construction sort of thing, and my husband not much better. Have
you any answer for us? Or is it DIY lessons out here for everyone?
Barbara the Builder
Dear Barbara the Builder,
You’ve definitely got hold of the wrong end of the screwdriver,
Builder Barbara! Time you went to another furniture shop my Petal. You
do not assemble the furniture yourself, but the agreed price will
include delivery and assembly. If the shop you have been looking in
doesn’t explain this to you properly, then it is time to find one that
does not suggest you buy a full kit of screwdrivers as well. Hillary had
some furniture delivered the other day and they assembled both in under
one hour, cleaned the room afterwards and even took the packing away. I
gave the men a small tip, I was so pleased with what they had done.
(Only small, mind you, as on my salary I can’t even afford chocolates
this week, and champagne is out of the question!).
Dear Hillary,
This is a fairly delicate problem and one that threatens to upset the
entire family. My younger brother is going to come over for a couple of
weeks in December and I just know it will be a disaster. First, every
time he goes anywhere for “just a couple of weeks” he is still there
one month later. He has a pension, so he doesn’t need to work, so that
doesn’t take him away. He also criticizes everything I do and I also
know he will bring women home, which is not the right thing to do in
front of my children. How can I persuade him not to come?
Big Sis
Dear Big Sis,
There are a couple of ways around this problem, Petal. First off, you
can threaten to go away on holidays yourself. After all December is a
good month to visit the rellies. You could always go and stay with him!
You can ask some other friends to come over so there is no room. You can
decide to redecorate and there will be no spare rooms without painters
tarpaulins and ladders. Or you could do what you should have done many
years ago - just say, No! You do say that you have children, so it’s
not as if you are 12 years old. He may be the youngest in the family,
but it’s time you just stood your ground. Do something positive. Time
you took charge of your life.
Psychological Perspectives: When logic and
experience collide: An evolving view of science
by Michael Catalanello,
Ph.D.
Philosophers have long entertained
themselves by arguing about various seemingly obscure issues. Although many
of the arguments of philosophers may strike us as endlessly tedious and
impractical, some of them can be quite entertaining. One of the most
interesting arguments in contemporary philosophy, in my view, is a debate
concerning the nature of science.
The nature of science is an important issue to the
members of my profession, mainly because modern psychology considers itself
to be a scientific discipline. Although the subject matter of psychology;
the mind, human thought, emotions, and behavior; can be traced back to the
philosophers of antiquity, modern psychology generally considers 1879 the
year of its inception. That is the year German psychologist Wilhelm Wundt
established the first experimental laboratory devoted to investigating
psychological issues, thus officially embracing methods used so
productively by the older, more established sciences of physics, chemistry,
and biology.
The success of science is undeniable. The 20th century
ushered in dramatic technological developments that have transformed the
lives of us all. Modern research has generated advances in medicine, a
dramatic revolution in information and communication, space exploration,
and revolutionary new ways of producing food for a dramatically increasing
population of human beings. We generally attribute such technological
advances to progress made in understanding the world brought about by
science.
While we, living in the 21st century, might take the
status and authority of science for granted, the unqualified trust we place
in science is of relatively recent origin in the history of human thought.
There was a time in the not so distant past when science competed for
authority alongside other claims to knowledge, originating from such
sources as magic, alchemy, religious cults and sorcery. It was only after
the successes of the Newtonian revolution that the credibility of
scientific claims became firmly and universally established.
What is it about science that distinguishes it from
superstition, religion, and pseudoscience? What makes science special? How
can we distinguish activities that are scientific from those that are not?
Philosophers refer to this as the issue of science’s demarcation. It
explores what it is that demarcates or distinguishes science from other
knowledge claims.
Most people, if they thought about this question, would
probably identify science’s method as its distinguishing feature. It
turns out, however, that those who have examined the methods that
scientists have historically employed have been unable to agree upon a
universal method used by scientists.
Granted, if you open a textbook on science, you will
probably find a section that describes a so-called “scientific method.”
A simplified version of that method might go as follows: define a problem
to be investigated, form a hypothesis or a statement that can be tested,
collect data, or make observations bearing upon the hypothesis, and draw
conclusions. Many of us were introduced to this method when we were
schoolchildren.
What is puzzling, however, is that there have been some
major advances that have occurred in science that have in no way been
associated with this textbook method. In fact, there are some very
interesting accounts of exemplary scientists of the caliber of Galileo and
Newton behaving seemingly unscientifically by arguing against the evidence
of our senses, or using clever manipulative techniques in order to win the
support of the scientific community to their dubious theories. Scientific
advances that occur under such circumstances are difficult to defend by
appeal to a special scientific method.
For example, it is generally assumed that scientists
take observable facts seriously and build theories consistent with them.
But history reveals otherwise.
One of the earliest debates in the history of science
concerned the question of whether the earth on which we live is stationary,
or in motion around its axis and around the sun. While it may be difficult
for us to imagine today, there were plausible arguments against a moving
earth that were based upon appeals to the evidence of our senses. After
all, it is impossible for us to have knowledge of the motion of our planet
using earthbound sensory experience alone.
In an intriguing passage from his historic book,
Dialogue Concerning the Two Chief World Systems, Galileo praises Copernicus
and the astronomer mathematician Aristarchus of Samos (310-230 B.C.) the
historical proponents of a moving earth cosmology, for their ability “to
make reason so conquer sense that, in defiance of the latter, the former
became mistress of their belief.”
The interesting point is that Galileo presents us with a
seemingly paradoxical view of scientists needing to overcome the evidence
of their senses by reason, in order to arrive at a more accurate
understanding of our world. Episodes like this create problems for
philosophers who wish to understand the distinguishing characteristics of
science. Questions concerning the nature of science constitute an ongoing
debate that is unlikely to be settled anytime soon.
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Dr. Catalanello is a licensed psychologist in his home State of Louisiana, USA, and a member of the Faculty of Liberal Arts at Asian University,
Chonburi. You may address questions and comments to him at [email protected], or post on his weblog at
http://asianupsych.blogspot.com
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