Japan’s main stock index – the Nikkei 225 – hit its highest level since December 1996 this week
The country has struggled for decades to escape the clutches of economic stagnation and deflation, which followed the collapse of a market bubble in 1992.
The market failed to recover from the bursting of the tech stock crash before the global financial crisis hit in 2008, and the Nikkei 225 fell by more than 60pc in
both cases.
A typical diversified investor is likely to have at least some exposure to Japan, as the country accounts for around 9pc of global stock markets – many popular global funds will own Japanese stocks.
Since prime minister Shinzo Abe took office five years ago and began his recovery programme, share prices have surged. The Nikkei index has returned 146pc in Japanese Yen.
A sterling investor would have experienced a 109pc return.
Despite the threat of 
North Korea, tensions with China, corporate governance issues and looming demographic problems, there is
Tom Becket, of Psigma Investment Management, said that while the risks are very real Japanese stocks are "currently putting firm ticks in our three key boxes. They’re good value – although not table-thumpingly cheap – have a supportive backdrop, and are under-owned by investors.”
Unemployment rate
A country’s unemployment rate is one of many
indicators which speaks to the health of its economy.
Japan’s unemployment rate has nearly halved since its spike to 5.4pc during the 2008 crisis, and is now at its lowest level since 1994, according to data from exchange traded fund provider WisdomTree.
Dividends and share buybacks
One of the challenges faced by Japan has been poor corporate governance, which is one of three areas
Prime Minister Abe’s reforms focus on.
More attention is now paid to shareholders, who are increasingly rewarded with dividends and share buybacks, instead of firms hoarding cash as they did previously.
The amounts paid out on both fronts have multiplied, and the Japanese market now yields more than the
US, at 2pc compared to 1.9pc, according to data from investment firm Star Capital.
Japanese firms still have large amounts of cash, which raises the possibility of further payouts.
This is not all positive however. Buying back shares
and paying dividends could be viewed as an indication that firms don’t have anywhere else to invest their cash.
Changing corporate governance is part of a bigger shift in the "deeply conservative" approach of investors in Japan, said Mr Becket.
He explained that the average Japanese 40-year-old has all their spare money invested in cash, and that investors have known "three decades of grinding deflation where risk taking has been penalised".
"We believe inflation will help alter the psychology of Japanese investors, and the new Corporate Code has started getting companies to put cash to work, which might be the impetus to change the culture of share ownership," he added.
Economic growth and political stability
Japan's GDP growth over the past two decades has been volatile, with a few quarters of growth followed by sudden contractions.
Now, Japan's GDP has grown in six consecutive quarters, something that hasn't happened since 2005.
This is far from long term stability, but is a step forward, particularly when coupled with Mr. Abe's expected re-election, which will ensure his recovery plans continue.
Mr Becket said: "In today's uncertain world, Japan's stable political system stands out with virtually no political or social unrest."
No comments:
Post a Comment