Japan Distracts Investors With Olympic Five-Ring Circus

“Tokyo 2020 Olympics could be shot in the arm for struggling Japan.”
NBC News

“The successful 2020 Olympic bid signals new hope for Japan.”
Time Magazine

So, that’s all it took.  Twenty years of economic stagnation and all Japan needed to get back on its feet was that the summer Olympics be hosted in its capital.  And after two decades of secular bear market, Japanese stocks are a buy again.  Such a shame no one thought of this sooner.

If you believe that, I recommend you close your brokerage account, withdraw the cash balance in a duffel bag, and then douse it in gasoline and set it on fire.  Because if you believe Japan is investable, you’re inevitably going to lose your money.  We might as well just skip a few steps and go directly to the fiery duffel bag.

But aren’t the Olympic Games good for the economy?

That’s the received wisdom.  But the evidence here is sketchy at best.

London hosted the 2012 Summer Olympics, and by the UK’s own estimates, ticket sales boosted British GDP by a whopping 0.2% in the third quarter of 2012. That’s hardly worth mentioning.

Hotels and food and beverage services picked up a little during the quarter the Olympics were hosted.  But the final analysis by the British government was that the overall impact was modest, and that consumption dollars spent on the Olympics might have simply “displaced other activity.”  In other words, an Olympic ticket came at the expense of a movie ticket that might have otherwise been purchased.

But wasn’t it good for employment?

Not really.  Quoting the UK Office for National Statistics, “Employment agencies showed some strength in the quarter and it is possible that some of this strength was related to the Olympics. However, there was no direct evidence from survey respondents to support this.

And hosting the Olympics isn’t free.  It cost the UK £9 billion to host the games, which amounted to £142 for every man, woman and child in the country.   (This is the part of the tab that the government picked up; private sponsors paid for quite a bit more.)

Of course, London’s transportation and infrastructure were improved in preparation  for the Games, and the UK will continue to reap the benefits of those improvements for years to come.  That has value, even if it is hard to quantify.

But would this matter to Japan?

Absolutely not.

Japan expects to spend about $6 billion building, among other things, 11 new sporting venues and 10 temporary ones.  But Olympic expenses rarely come in under budget;  Russia’s 2014 Sochi Olympics are on track to cost $50 billion, and the 2012 London Olympics went over budget by nearly 400%.

And the last thing Japan needs is new infrastructure.  At the risk of sounding alarmist, in another few decades there will be no Japanese left to use it.  Japan’s population shrunk by 200,000 people last year, and Japan is the oldest country in the world.  A quarter of the population is over the age of 65…and that number creeps up every year.

Hosting the Olympics provides the proverbial bread and circuses for the population, but it does nothing to address the country’s long-term problems.  With sovereign debts approaching 250% of GDP—and with fewer Japanese taxpayers to service that debt every year—Japan is heading towards a sovereign debt meltdown.

Japan’s domestic market is dying.  Not even Japan’s world-class multinationals see opportunity there today.   As a case in point, Suntory Beverage & Food (Japan:2587), one of Japan’s largest consumer staples companies, announced today that it would be buying the Lucozade and Ribena drink brands from Britain’s GlaxoSmithKline (GSK) for $2.1 billion as a means of diversifying outside of Japan.

Suntory has been aggressively expanding outside of Japan, where the company already generates just shy of a third of its revenues.  Expect this to continue, as it is the company’s only outlet for growth.

So, with all of this said, are their pockets of opportunity based on the Olympics bid?  Maybe.  But I wouldn’t get too attached, as the companies best positioned to profit have already seen their share prices jump.  Taisei Corp, which built the stadium for the 1964 Olympics, saw its shares jump by 17% on hopes that it will be involved in the 2020 games.

The best course of action?  Move on.  Ignore the Olympic hype and seek your investment opportunities elsewhere.

This article first appeared on InvestorPlace.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Click here to learn about his top 5 global investing trends and get your copy of “The Top 5 Million Dollar Trends of 2013.”