Investment managers are confident about the prospects for investing in Japan

News - Funds

Written by Ray Clancy

Friday, 09 July 2010 09:21

Investment managers are generally optimistic about the outlook in Japan due to the country’s thriving export industry, according to a survey by the Association of Investment Companies.

Although Japan has had a mixed investment history they believe it is an interesting time to be looking at the country as the investment company Japan sector is currently up 8% over the last year, but down 19% over five years.

It said that the Japanese Smaller Companies sector is also showing signs of recovery, up 12% over one year although still down a disappointing 43% over five years.

When asked whether investors should have faith in investing in Japan, the managers were generally optimistic. Japan, like the rest of the world, has suffered as a result of the global recession however, the managers think that the thriving export industry in Japan is a cause for optimism and the outlook is positive.

Andrew Rose, fund manager of Schroder Japan Growth Fund, is confident about the prospects for investing in Japan. ‘We believe the underlying positive case for recovery in Japan remains intact. Export data remains strong, and although the external side of the Japanese economy is outpacing the domestic, we expect to see clearer signs of improvement at home over the coming months,’ he said.

‘The stock market should be supported by the renewed fiscal stimulus and easy monetary policies. Unlike some other parts of the world we do not see the Japanese authorities starting to exit their loose monetary stance in the near future,’ he added.

John MacDougall, manager of Baillie Gifford Shin Nippon, agrees that the outlook is a positive one but he thinks the market is still looking unstable. ‘The Japanese market has traditionally performed strongly relative to other markets as global demand has recovered, given the importance of exports to the Japanese corporate sector,’ he explained.

‘However, this has not been the case over the past 18 months despite the Japanese economy rebounding quicker than expected. Companies have also managed to produce record cash flow in recent periods thanks to the aggressiveness of the cost cutting undertaken during the downturn, but the market has still lagged. This relative underperformance, despite the improvement in fundamentals, provides investors with an exciting opportunity,’ he added.

Shingo Sugiura, portfolio manager at Melchior Japan said he believes that Japan has recovered well after the global credit crisis. He pointed out that Japan is geographically well placed to benefit from the increasing presence of China in the global economy.

Mangers are divided on the impact that the recent political changes in Japan are having on the markets but they agree that the future for investing in Japan will remain attractive over the longer term as the export market is strong and the core industries in the country, such as technology, are well positioned to produce attractive returns.

‘We expect Japanese corporate profits to continue to grow in the near term. We also expect the domestic economy to find a firmer footing and stage a recovery soon,’ said Sugiura.

‘A profits recovery is underway and should continue through into 2010, helped by rebounding exports and cost cutting at many firms. The Japanese market has taken the first steps towards catching up with global markets, which it has lagged over the medium term, but we believe there is further to run in this process,’ said Rose.