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Japan's export growth: Will General Motors' loss be Japan’s gain?

Japan's export growth: Will General Motors' loss be Japan’s gain? (Part 1 of 9)

Will the Japanese automakers benefit from General Motors’ woes?

Will Japanese auto shares outperform in the near term?

The below graph reflects the ongoing decline in GM’s stock price through Friday, April 4. While the auto sector has been a bit soft overall since the beginning of the year, the below graph reflects that GM’s share price has slowly lost the momentum it had over Japanese automakers. Perhaps the recall of as many as 2.6 million vehicles will reinforce this recent trend. It should be noted that GM’s recall is far less than the 9 million that Toyota recalled in 2010. This series examines Japan’s key import and export data and considers the prospects for the Japanese equity markets. This article considers Japanese auto makers and their role in the broader Japanese economy.

GM Toyota Honda NissanEnlarge Graph

GM recalls 2.6 million—Toyota had recalled 9 million

After Toyota had its own recall fiasco in 2010, it would appear that GM has unfortunately fallen victim to the same fate. Toyota had recalled 5.2 million vehicles for a petal/floor mat issue, and an additional 2.3 million vehicles for the accelerator problem. Toyota then recalled an additional 1.8 million vehicles in Europe, with total recalls standing at 9 million. Toyota declined from $85 per share to $63 per share, or 26%. In comparison, GM has declined only 10%.

AutosJapan’s biggest export

Japan’s manufacturing exports reflect that autos comprise 16.4% of shipments, while electrical machinery, the next largest sector, comprises 15.5% of shipments. The Japanese auto sector is approximately $400 billion per annum of Japan’s $5 trillion GDP. Clearly, Japan’s auto sector, to include auto exports, is a key driver for Japan’s overall economic growth, and what is good for Toyota is good for Japan.

To see how much growing auto exports compare to offsetting crude oil imports in Japan, read the next part of this series.

For an overview of the April 1, Bank of Japan Beige Book on Japan’s economic outlook, read Bank of Japan Tankan supports a 2014 equity rally in Japan.

Japan’s equity outlook

As 2014 progresses, investors could see a continued outperformance of Wisdom Tree Japan Hedged (DXJ) and the iShares MSCI Japan ETF (EWJ) versus China’s iShares FTSE China 25 Index Fund (FXI) and Korea’s iShares MSCI South Korea Capped Index Fund (EWY). For further clarification as to why DXJ could outperform both EWJ and other Asian equity indices, read Why Japanese ETFs outperform Chinese and Korean ETFs on Abenomics. Plus, as Japan pursues unprecedented monetary expansion, and the U.S. Fed tapers its bond purchases, Japanese equities could also outperform the broad U.S. equity indices, as reflected in the State Street Global Advisors S&P 500 SPDR (SPY), State Street Global Advisors Dow Jones Index SPDR (DIA), and Blackrock iShares S&P 500 Index (IVV).

The Realist Discussions

  • Sofia Caden

    A recovery of General Motors is evident, though, since revenues from GM Europe declined just 2.8% during FY13 after a reported decline of 17.75% in Fiscal Year 2012