The ultimate carry trade

I won't post whole article, but this one has better info than the last two.

Prospect positions for J-Reit consolidation
By Jame DiBiasio | 7 July 2008
....These so-called “orphan” Reits are fragmented and lack a sponsor from one of Japan’s big conglomerates, and therefore have no obvious single source of supply of new properties. That puts their share prices at a discount to net asset value. But the physical market in metropolitan Tokyo has fared well.

Prospect is happy to own many of these orphans because the dividend yields are high, thanks to high occupancy rents and the reliability of middle-class tenants to pay their rents. Such cash flows easily cover the Reits’ cost of debt as well as provide for a decent dividend.....

Source: http://www.asianinvestor.net/article.aspx?CIaNID=79773
 
Interesting articles, thanks.

As hinted at in the last article, corporate activity will (as always) be what kick starts recovery in this beaten down sector. In 1998, a few western businesses started buying corporate assets in Asia in the depths of the financial crisis. This was a sign that the end to the bear market was near. It is the same here with Japanese REITs. Once you see the first REIT get taken private, taken over, shaken up by an activist fund, launching a serious share buyback, or liquidating assets and paying proceeds out to shareholders, then you know the ball has started rolling and the trend from then on is likely to be up.

In my opinion this may well happen by the end of the year. It would be a good timing signal to increase the size of your investment, or to step up to the plate if you have not yet done so.
 
Quote from matgallis:

:confused:
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the collateral used for the JPY borrowings would be kept as USD or EUR so you would have no exposure to the yen.

I did some work on jreits on the beginning of the year but I decided to not touch them because the trend was down, population growth is still negative with little immigration(meaning there was no secular play there), big concerns that they were headed to deflation again and distrust of the banking system.

Now with an additional discounts to book value it looks like they have margin of safety in a deflation scenario and I might consider buying some when I get bullish on equities again, if they go up when global equities flat or down then I will just watch them go up.
I'm concerned that with US equities in a period of declining valuations could keep the japanese equity market permanently undervalued. JREITs are cheap but so is a number of other japanese stocks, they could get cheaper or stay flat and depressed for a long-time.

BTW, does anyone know if there is witholding taxes on dividends to foreigners in japan?
 
Yeah, I'm always interested in Japan. It's just that everything there seems to be dead money. They're still in a liquidity trap, more or less, and the investor confidence in commercial real estate cratered in the 1980's and STILL hasn't come back. There have been so many false starts, where real estate looks to appreciate, and then just stalls.

Also, I worry about a lack of transparency in JREIT holdings.

Also, even if there is inflation in global commodities...that doesn't translate to domestic asset inflation, or higher rents.

Also, why would you use leverage to invest in highly leveraged JREITS....it's already a speculative bet.
 
Quote from Cutten:

When $1 is selling for 40 cents, why use technicals?

P.S. no offence but I don't work as anyone's unpaid personal analyst/research assistant. Go online and do the legwork yourself, if you are interested. Now if you have something of value to offer, I'd consider trading info like for like - but not value for nada.
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That was a rhetorical question. I did not intend to ask for any research or technical analysis.
 
Quote from Daal:

the collateral used for the JPY borrowings would be kept as USD or EUR so you would have no exposure to the yen.
More...
If you exchange some paper asset for jpy assets @ 2% and the JPY appreciate 5% this month your loss is 7% when you trade back the collateral at the end of the trade assuming there's some set par value for the collateral used like a treasury bond.

You're exchanging more jpy for the same value of collateral USD. How is this not exchange risk?
 
Maybe I'm ignorant about this, but I think people are over-complicating Cutten's trade.
Buy jpy, no other collateral. buy REITs --> use REIT units as collateral for more units. Sit there and take in yield until something goes wrong (ie. rates go up). Hope prices don't go down more, or that yield goes away. Done.

jpy goes up = REIT units go up , debt goes up, distributions goes up with respect to whatever jpy went up against.
 
Quote from matgallis:

If you exchange some paper asset for jpy assets @ 2% and the JPY appreciate 5% this month your loss is 7% when you trade back the collateral at the end of the trade assuming there's some set par value for the collateral used like a treasury bond.

You're exchanging more jpy for the same value of collateral USD. How is this not exchange risk?
More...

I'm not sure I understand you. there is JPY exposure that I missed that comes from a loss or profit on the position. If you have $50,000 in TBills(or IB EFPs) used as collateral to borrow in JPY to put in JREITs if you lose money on the trade you will settle the debt later on using USD and buying JPY so you are exposed to that. plus there is exposure on expected future JPY earnings on the trade that will one day be converted back to dollars, but its not hard to hedge this anyway
 
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