The Blairs and the Russians

I've written in this column before about how you can't trust the statistics on house prices, particularly in the top of the market or when transaction levels are low. Why? Because the house price indices only measure the deals that are actually done, not those that are not. So, one price insensitive buyer at the margin who suddenly pays the asking price for a house no one else will touch can throw out the numbers for a whole area. In central London these days, that buyer is usually a cash-rich Russian, but last week a new culprit arrived to confuse the numbers. Tony Blair. Thanks to him and his purchase of number 29 Connaught Square for the ludicrous price of £3.6m, any one studying house prices in Paddington (for Connaught Square is in Paddington and always will be, however much the estate agents insist on calling the whole area Bayswater) over the summer will think that they rose considerably when they didn't: mostly they fell. And I think they will continue to do so. So far the Blairs have been nothing but a contrary indicator for the direction of the market. Why should that change now?

I'm often told that we should invite more optimistic people to our Roundtables. Most months, nearly all our participants are bearish on everything - from houses to equities. So this month, being positive on Japan ourselves, we invited a group of Japan specialists in to discuss the Tokyo market. And we had our first ever bullish Roundtable. There was some argument about the short-term direction of the market, but a general agreement (with one exception) that Japan has made enormous progress over the last decade and is now clearly in a long-term structural bull market.

That said, if you are going to buy into Japan it pays to be selective. Too many foreigners buying into Japan, said our Roundtable participants, just buy the big names they know - Honda, Sony and a couple of the big pharmaceutical companies - and are blissfully unaware that they have virtually no real Japanese exposure worth having. These are global companies: not only do they not give you a very pure exposure to the domestic economy (which is where the action is), but many of them - as exporters - are very vulnerable to any slowdown in the US or China. That makes them pretty risky buys at the moment. The Roundtable have suggested a few shares that they think will do well in Japan, but as it tends to be outrageously expensive to buy individual Japanese shares via a UK broker, for most of us a Japan smaller companies fund might be a better way in to the market.

MoneyWeek

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