Talking Point  

Japan investment allocations start to rise

Japan investment allocations start to rise

Japan exposure in global portfolios has started to rise slightly, data from Bank of America Merrill Lynch has found.

The global managers' survey for October showed while there was still reluctance to buy fixed income in Japan, allocation to Japanese equities had improved "modestly" to a net 3 per cent underweight.

In September, the global fund managers surveyed by Bank of America Merrill Lynch had held a net 8 per cent underweight position in Japanese equities.

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According to the study, although there is still some caution about profit condition in the country, a more positive approach by the Bank of Japan (BoJ) has given some investors confidence.

The report gave a qualified thumbs-up to parts of the Japanese equity market, stating: "Japan equity investors see better growth and inflation and the BoJ policy as less restrictive.

"The BoJ seems to have been able to avoid a total disappointment by the market when it introduced a new policy framework in its September meeting."

When it comes to what managers have been doing, the study suggested Japan equity investors have reduced allocations in banks and real estate, but increased allocation in insurance companies.

The study also suggested investors were positioning for growth. It said: "Besides, investor positions moved further overweight in industrials and autos and less overweight retail and staples, indicating some rotation from defensives to cyclicals."

Retail investors, however, seem to be a little more cautious, as advisers have revealed.

A series of polls carried out by FTA Talking Point suggest 48 per cent of advisers would consider increasing their clients' allocations to Japan over the next year, while 43 per cent said they would increase exposure but no more than 10 per cent of client portfolios.

A separate poll found advisers' opinion was split equally among those whose clients were considering Japanese equities, Japanese fixed income and those whose clients still felt it was too risky.

Ben Willis, head of research for Bristol-based Whitechurch Financial Consultants, said: "The BoJ stimulus has certainly provided a support to stock markets. 

"Much of the attraction of Japanese equities is that it is relatively cheap on a valuation basis, but corporate earnings are key if we are to see further recovery here."