Multi-asset managers urge investors not to write off Japan

Multi-asset managers have urged investors not to write off Japan as they continue to increase their exposure to the country.

Managers from Premier Asset Management, Fidelity and Barings have said the Japanese prime minister Shinzo Abe’s reform programme – dubbed ‘Abenomics’ – will continue to provide a boost for the country and have continued to increase their Japan weightings.

Simon Evan-Cook, senior investment manager at Premier, compared the reforms to those introduced in the UK by Margaret Thatcher in the 1980s, emphasising the longer-term nature of their impact.

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“To those who have written [Abenomics] off, we would suggest it is simply far too early to call it either way,” Mr Evan-Cook said.

“The reforms are designed to work over a generation, not 12 months. In this respect, it is probably easier to compare them to Thatcher’s market reforms of the early eighties. These were uncomfortable in their application, but arguably laid the foundations for a 20-year British economic renaissance.”

Andrew Cole, manager of the Baring Multi Asset fund, said he remained positive on Japanese equities even though the government now faced the “delicate task” of dealing with politically sensitive issues such as the reform of the labour market –arguably the toughest aspect of his reform programme.

“We are confident that government policy is heading in the right direction and that the necessary adjustments will be made,” he said.

“However, the first months of 2014 will be crucial for Japan and we remain vigilant.”

Trevor Greetham, director of asset allocation at Fidelity, said even though Japan was set to raise the sales tax in April next year he expected “additional offsetting measures” as part of Mr Abe’s “aggressively pro-growth regime”.

“The Bank of Japan is in full blooded easing mode with the explicit aim of creating 2 per cent inflation and that policy will remain in force to offset modest fiscal tightening,” he said.

Japanese equities rallied strongly from the end of 2012 when Mr Abe was elected until mid-May 2013, gaining more than 60 per cent in local currency terms. But markets suffered a sharp slump as hoped-for further reforms did not immediately materialise, and since May the Topix index has traded broadly sideways.

The country received a further blow early last week when third-quarter economic growth was revised down to an annualised increase of 1.1 per cent, indicating that the initial effects of the stimulus package have already begun to wear off.

The initial estimate announced in November was 1.9 per cent, while the Japanese economy grew at an annualised rate of 4.5 per cent in the first quarter and 3.6 per cent in the second quarter.

However, Mr Evan-Cook said Japanese companies were still generally undervalued and argued that the government’s trio of reform packages were “a free option” on the market which could provide a kicker for returns.

“This is why, with the market gloomy on Abenomics and Japan again, we are topping up this month,” he added.