Fund Review: Japan

Japan has had a very positive year so far with the Topix index rising 27.92 per cent, according to data provider FE Analytics.

Furthermore, the region’s GDP figure for the second quarter of 2013 was recently upwardly revised to 0.9 per cent from 0.6 per cent.

According to Nancy Curtin, chief investment officer at Close Brothers Asset Management, this is not the only sign of recovery as a result of prime minister Shinzo Abe’s “initial shock and awe approach”.

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She adds: “Amid strong indications that exports and fixed asset investments are picking up, public investment is rising and the housing sector looks even more robust.

“With reflationary tactics now bearing fruit, it’s clear the world’s third largest economy is heading in the right direction. This improvement is also coming through at the consumer level, where spending is increasingly reflecting a rise in consumer confidence.”

Of course, the rise in Japan’s equity market was in no way dampened by the news that it had won the race to host the 2020 Summer Olympics, with the stocks of firms set to benefit performing particularly strongly in the immediate aftermath.

“Many Olympic-themed names have performed extremely well,” Henderson’s Japan Capital Growth fund and Horizon Japanese Equity fund manager Michael Wood-Martin explains.

“Going into the final quarter of the year we should get greater clarity on issues such as the consumption tax over which there has been some concern about implementation. Once such issues have been cleared up the market should be able to progress and refocus once more on the hard facts of companies witnessing an improvement in business conditions.”

For investors, the question now is whether the Japanese boat has been missed. Mr Wood-Martin argues that the region has much more to offer.

“Bank lending is expanding (reversing a long-term trend of contraction) as the housing market recovers and as corporates borrow more. Profits are recovering sharply in response to the weakening in the yen… which in turn is beginning to filter through to a rise in wages. What’s more, the government is also considering a cut in corporation tax to enhance the attractiveness and effectiveness of the Japanese corporate structure. This government is much more ‘hands-on’ than before and signals a commitment to getting Japan moving forward.”

He adds: “Granted, the stockmarket has enjoyed a tremendous run. Gains from here will be harder earned but with the commitment from the authorities resolute, an advantageous currency level and a corporate sector enjoying the fruits of prior restructuring efforts, the outlook for Japanese equities remains encouraging.”


Aberdeen Asia Pacific & Japan fund

Under the guidance of managing director Hugh Young, Aberdeen’s Asian equity team looks for companies that offer good growth potential, predominantly in the large- and mid-cap Asian equity market. In five years the £278.9m fund has delivered an 85.18 per cent return compared with the IMA Asia Pacific including Japan sector average return of 68.31 per cent.