100 Club: JPM’s Japan bull expects fruitful 2015

100 Club: JPM’s Japan bull expects fruitful 2015

Returns for investors in Japanese stocks could hit all-time highs this year, according to a bullish update from Nicholas Weindling.

The co-manager of the JPMorgan Japanese Investment Trust said fundamental changes were underway in the country, which meant those holding Japanese stocks could be in for a significant boost.

Mr Weindling said Japanese companies paid “record-high” dividends in the first half of 2014 and there could be more returns to come.

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“With share buy-backs also increasing, total shareholder returns are expected to reach their highest-ever level in 2015,” he said. “If these signs are anything to go by, an entrenched dividend culture could be on the horizon for corporate Japan.”

The manager cited the example of a cash-rich company that had embraced the push by prime minister Shinzo Abe for companies to return more cash to shareholders.

“Among these is [our top holding] Keyence, a growing high-tech company that develops sensors and measuring instruments used for factory automation and other products,” he said.

“Keyence surprised investors in October 2014 by more than tripling its dividend forecast, from 60 yen (33p) per share to 200 yen per share.

“A more upbeat stance on dividend payments was unexpected because the company has in the past been known for its shareholder unfriendliness, with its founder a firm believer in the ‘cash is king’ mantra, letting cash pile up on the company’s balance sheet.”

Mr Weindling said while the company’s payout ratio remained “relatively low at around 10 per cent”, he expected further progress from Keyence and other cash-rich companies with high growth potential.

A new stockmarket index – the JPX-Nikkei Index 400 – was launched at the beginning of 2014 and had return on equity as one of its selection criteria for company constituents, Mr Weindling added.

Elsewhere, the manager said he was specifically targeting Japanese retailers and leisure companies benefiting from “increased foreign tourism as a result of Shinzo Abe’s ongoing policy initiatives”.

The prime minister’s easy monetary policy stance has seen the Japanese yen weaken markedly against many other currencies, meaning travel for overseas visitors is cheaper.

The manager also said in a recent update a key theme in the portfolio was the “increasing degree of automation in the manufacturing sector” and that he was overweight leading companies in the space, including SMC and Fanuc.

The trust’s 82.3 per cent return in five years is well above the rise of 41.2 per cent by the benchmark Topix index, according to data from FE Analytics.