InvestmentsMay 14 2013

Japan still attractive despite yen weakness, managers say

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ByCharlotte Richards

Even though it has experienced lethargic growth for the past 20 years, Japan still remains the world’s third largest economy and offers a few promising investment opportunities, MM research finds.

In the latest analysis from Money Management, it is clear fund managers are not giving up on the country, which only recently was overtaken by China as the world’s second-largest economy.

While the country is still not out of the woods after its 2011 earthquake, there is still a space for Japanese equities in investment portfolios. Figures from the Investment Management Association show that average net retail inflows for the Japan region – including the Japan and Japanese Smaller Companies sectors – in March 2013 was £36m, a staggering amount above the average net retail sales for the previous 12 months, which saw £1.6m move out of funds in these sectors.

Now is an interesting time for Japan as it looks set for change in the coming years with its new prime minister, Shinzo Abe, in tow.

Mr Abe, who was sworn into office in December 2012 for his second stint as premier, has been pushing for the country’s economy to improve, encouraging the Bank of Japan to do jump to action. His plans– dubbed ‘Abenomics’ – that include greater government spending have been extremely popular so far with analysts.

For Jonathan Greig, head of Japanese equities at Hermes Fund Managers, it is likely there will be continued and stronger growth for Japan in 2013. He said much of the economic recovery after the devastating 2011 earthquake was down to statistical sleight of hand.

Mr Greig added there was always going to be a large year-on-year rebound in the GDP numbers once the periods of the earthquake and the Thailand flood later in the year were taken out of the annual figures.

However, he said the Japanese government has continued to provide other fiscal support via supplementary budgets and sector-specific tax incentives.

Mr Greig also said that, with regard to Japan’s government budget deficits, it is important not to over look that the country’s new quantitative easing programme “dwarfs” that of the United States.

“The new BoJ proposals equate to around two times the planned ¥44tn planned of new Japanese borrowing for the current fiscal year, while the Federal Reserve merely covers that planned in the US this year,” he said.