Manager split emerges over Japan strategy

Manager split emerges over Japan strategy

Managers are debating whether the opportunity lies in domestic or global-facing Japanese stocks after monetary stimulus was ramped up by the Bank of Japan to counter low inflation and low growth.

Japan’s loose policy is set to continue as the central bank concluded a review of its programme and committed to bond purchases until inflation exceeded 2 per cent, and to keep 10-year bond yields at 0 per cent.

The country’s economic travails – including the ups and downs of the yen – have long divided investors, who must decide whether to back currency-sensitive exporters.

Monetary policy has done little to establish consensus, however, with managers having mixed feelings on the country.

Richard Aston, manager of Coupland Cardiff’s Japan Income and Growth Trust, suggested weak demographics as a result of an ageing population were a headwind for domestic-focused companies.

“There are some stories where the prospects are limited in Japan but promising in Asia. In parts of Asia, Japanese brands are held in high regard.”

One stock Mr Aston has been monitoring is Pigeon Global, a provider of baby products. He noted: “The number of babies in Japan is falling but the number in China is increasing and the brand is well known there”.

The manager has been avoiding certain local industries – including utilities, which have cut dividends after the Fukushima nuclear disaster in 2011.

Others have countered such an approach, with Nicholas Weindling, co-manager of the JPMorgan Japanese Investment Trust, warning peers to view the global economy as a possible headwind for the market.

“The single biggest worry for Japan is that all this talk about the world getting better doesn’t come to anything, and a recession comes to pass,” he said.

“Japan is a cyclical economy. It is linked to the global economy. If you are negative on the global economy, Japan will struggle.”

But Miyuki Kashima, head of Japanese equity at BNY Mellon, backed a local approach, claiming the domestic economy was “larger than people think”.

“In terms of the stockmarket, people often say ‘Japan is a play on the global economy’, so there’s a high emphasis on the currency. But Japan’s export ratio is only 15 per cent,” she said.

Mr Aston noted, however, that the impact of exporters was “considered to be greater” than the 15 per cent figure because leading manufacturers support a network of local parts suppliers.

But Ms Kashima said between 1997 and 2012, Japan’s nominal GDP shrank by 10 per cent – a figure that would have been 5 percentage points higher without the inclusion of exports. 

“There’s overemphasis on the currency because the only thing most people know about Japan is related to cars or consumer products,” she added.

Additional reporting by Dave Baxter