InvestmentsMay 24 2013

Managers optimistic on further Japan growth

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ByMatthew Jeynes

Discretionary managers have said they are optimistic the Japanese stockmarket will continue to rise in spite of growing fears a correction could be overdue.

The Nikkei 225 index has risen by 45.6 per cent in local currency terms so far in 2013, and by 74.7 per cent since mid-November 2012, though the weakness of the yen has reduced some of those gains for those investing in sterling.

The speed and extent of the rally has led some to question whether the market has risen too far too fast, but discretionary managers remain bullish on Japan’s prospects.

Peter Lowman, chief investment officer at Investment Quorum, said: “Everyone has been so underweight in Japan that a lot of money still has to pour in.”

Mr Lowman said he was invested in Japan already but was considering putting more money into the market as “we are still a long way from the 40,000 level where the Nikkei was in 1989”.

While the initial rally was fuelled by the anticipation of the yen being weakened and money flooding into the Japanese economy, growth figures for the first quarter of 2013 showed Japan’s economy grew by 3.5 per cent, the fastest growth in all of the major G7 economies.

The growth figures suggest prime minister Shinzo Abe’s stimulus strategy might work to boost the economy as well as the markets, and investors are now looking ahead to further stimulus measures if Mr Abe’s party wins back the Upper House of the Japanese government in elections this summer.

Tim Cockerill, head of collectives research at Rowan Dartington, said: “If Mr Abe wins the elections this summer and embarks on more stimulus, we may see a real and meaningful change in Japan.

“We could see the Japanese market go higher if these measures go through.”

Gavin Haynes, managing director of Whitechurch Securities, said he had been investing in Japan since 2011, principally through the £625m Jupiter Japan Income fund.

Mr Haynes said his outlook remained positive. “There is a feeling the market may have gone too far too quickly, but there are still a lot of institutional investors that have little or no exposure to Japan, and very few people got in early on the rally, so very few will be taking profits.”

However, Tom Becket, chief investment officer at Psigma Investment Management, last week recommended his investment managers sell their exposure to Japan, mainly because it has become “very difficult to assess the fundamentals and valuations of Japanese stocks”.