Investing in Japan has been a miserable experience for many investors over the past 20 years, but at last the Japanese stock market is enjoying a renaissance. And if pundits are correct, the revival has further to go.
Brian Dennehy, managing director of trust scrutineer FundExpert, is among those gripped by the story and believes investors should at least be dipping their toes into Japan.
‘The US market is overvalued whereas Japan remains cheap,’ he says.
‘And I have more confidence in Japan solving its economic problems than Europe. Put simply, Japan is much more cohesive, socially and politically.’
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Although Japan’s leading market index, the Nikkei 225, has risen 60 per cent since mid-November, it is more than 60 per cent below its peak of December 1989.
The renewed confidence has been triggered largely by the Bank of Japan embarking on a huge money printing exercise.
The aim is to invigorate the economy by encouraging a lower yen to benefit exports and breaking the stranglehold that deflation has had on the country since 1998. Alongside this, the new Prime Minister, Shinzo Abe, plans to stimulate growth through the ‘three arrows of policy’ – monetary easing, fiscal stimulus and structural reform, including greater labour market flexibility, tax reform and deregulation.
Sarah Whitley, head of Japanese equities at investment house Baillie Gifford, is among those who believe that ‘Abenomics’ – the label given to Abe’s policies – is at last tackling problems that have held back the economy for two decades.
‘There is now a uniformity of purpose in Japan to try to solve some of the problems that have been intractable since the notorious Japanese bubble of the late Eighties,’ she says.
She is encouraged by the fact that corporate profits are recovering strongly – by at least 40 per cent in the past 12 months – and the widespread support among firms for Abe’s and the Bank of Japan’s initiatives.
Whitley manages Baillie Gifford Japan investment trust, whose share price has risen 68 per cent over the past year.
The Edinburgh investment house has a reputation for running Japanese equity portfolios, including a smaller companies trust, Shin Nippon, and unit trusts Baillie Gifford Japanese and Japanese Smaller Companies.