Investors should look east to the land of “rising returns” and “cheap valuations”, after Yoshihide Suga’s appointment as prime minister spurred confidence Japan will continue along the path of 'Abenomics'.
Last week, Mr Suga was formerly appointed as Japan’s new prime minister after Shinzo Abe, the country’s longest-standing leader and mastermind of Abenomics, stepped down for health reasons.
Chris Taylor, Liontrust’s Japan manager, urged investors to “look east to the land of rising returns, driven by rising profits and rising valuations”, describing it as a market “all set to go for gold” in 2021.
Among investment managers, the appointment or Mr Suga is positive. Richard Batty, multi-asset fund manager at Invesco, said: “As the cabinet secretary, Mr Suga has been at the heart of the Abe administration.
“We are encouraged by his talk of a ‘continuity agenda’ and it was interesting to note how the stock market wobble on the Abe resignation announcement lasted just a few days.”
Joe Bauernfreund, fund manager for AVI Japan Opportunity Trust and AVI Global Trust, agreed, describing Mr Suga as Mr Abe’s “natural successor”.
He added: “He was his right-hand man and was involved in many of his policies.
“If anything, we expect him to be more market friendly. He has an interest in boosting productivity and a focus on digitisation.”
Mr Suga is expected to build on the progress made by Mr Abe’s Abenomics rather than reverse it.
Mr Abe’s economic policy consisted of three arrows – quantitative easing, fiscal spending and structural reforms.
Large-scale bond buying was planned to help generate modest inflation and make Japanese exports more attractive, while Mr Abe hoped government spending would stimulate demand and consumption, prompting short-term growth.
His third, and arguably hardest reform, involved changes to push economic growth. This included higher wages for employees, higher profitability targets for companies and encouraging greater female participation in the labour force.
Matthew Cady, investment strategist at Brooks Macdonald, said: “In broad terms, [Mr Abe’s] policies have seen both success and criticism.
“Monetary easing in particular was very effective in weakening the yen in the early years of its implementation, boosting Japanese multi-national equities and export markets and employment in particular.
“Against this, the increase in the sales tax from 5 per cent to 10 per cent has led to claims of a tightening fiscal policy, with Japanese policy makers arguably promising stimulus but delivering restraint.”
For Stuart Clark, portfolio manager at Quilter Investors, Mr Abe’s monetary policy had been a “massive positive” to the investment environment in Japan while his corporate tax and governance reforms had brought “modernisation” to many of Japan’s businesses.
He added: “Mr Abe’s labour market reforms, however, have been much harder to push through and was one reform too far for the former prime minister.
“This area is rightly considered the key to unlocking future economic growth for Japan.”