Felix Zulauf: Buy Japan

published 20 June 2014

Felix Zulauf of Zulauf Asset Management has a good record in getting the big calls right.He was rightly bearish on the macro picture in early 2008, but bullish on markets in early 2009. When he attended the latest mid-year Roundtable at Barron's, he was in a gloomy mood.

Never has so much money been hurled into the world economy, yet "this has been the weakest economic recovery by far" for the West.

That's due to high debts, broken banks, ageing populations and globalisation, which have "dampened the income of the middle class and moved some of it to the emerging world". The US is set for growth of around 2% this year; Europe will expand by less than 1%.

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However, the world "is too optimistic about growth", and markets have raced ahead of the fundamentals."The world is yield-hungry, but there is less and less yield, so people are going after riskier investments."

Stocks are also overcooked. Zulauf believes thata correction of over 10% is a possibility and could happen in late summer.

China is a medium-term worry. It is "in a growth slump that could worsen next year", dampening the overall performance of the emerging world. History shows that the excesses seen in the Chinese economy tend to leadto setbacks that can last years and wipe 5%-15% off GDP.

The strengthening currency and rising wages for low-cost labour up 20% in five years are undermining competitiveness.

On a more positive note, look for Japan's Nikkei to rally later in 2014 or early 2015. Zulauf correctly predicted in January that the yen would strengthen and the Japanese stock markets weaken.

But he thinks the Bank of Japan will print more money later this year, cheapening the currency and propelling equities upwards.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.