Following on from last week’s Japanese liquidation value: 1932 US redux post, I’ve been trying to determine whether the historical performance of Japanese sub-liquidation value stocks matches the experience in the US. The question arises because of the perception (rightly or not) that the weakness of shareholder rights in Japan means that net current asset value stocks there are destined to trade at a discount to net current asset value. I’m always a little chary of the “Japan has weak shareholder rights” narrative (or any narrative, for that matter). I’d rather look at the data. In this instance, unfortunately, the data are wanting.

In The performance of Japanese common stocks in relation to their net current asset values, a 1993 paper by Bildersee, Cheh and Zutshi, the authors analyzed the performance of Japanese net nets between 1975 and 1988. Here are their findings described in another paper:

Are there any bright spots in this market?

In normal times investors can use sector investing to find opportunities despite overall market weakness. The last two years have provided fewer such opportunities. The correlation among sectors has been very high in both directions. Most recently, sector strength has been linked to dollar weakness.

We previously examined the performance of various country-specific ETFs in 2010 and Japan (EWJ) and Russia (RSX) were standouts. This trend has shown no sign of abating, and may well continue throughout 2010. In particular Japan, which has been a "dead money" market for about 20 years now, may be poised for relative outperformance gains in 2010 vis-a-vis some other major country ETFs.

The other international ETFs profiled in the chart include India (PIN) in purple, Canada (EWC) in white, Australia (EWA) in blue, China (FXI) in green, Germany (EWG) in orange, and Brazil (EWZ) in yellow. Brazil is the laggard of these countries thus far this calendar year.