‘Abenomics’ has enjoyed plenty of headline limelight in the past two-and-a-half years, and for many investors provides the bedrock of their conviction to ongoing Japanese market growth.
The truth, it seems, is in the numbers – the Nikkei 225 climbing 12,000 points in two years has benefitted many, and appears set to continue doing so.
However, Atherton, senior portfolio manager on Man Group’s GLG Japan CoreAlpha Fund, believes that undue credit is being attributed to Shinzo Abe’s ‘three arrows’, and it is time for investors to swallow a dose of reality.
“We have lived off the phrase ‘too soon to be too cynical’ for the past two-and-a-half years,” he said. “Now we should be a bit more cynical.
“Everybody – including the Japan fund managers themselves – is hooked on ‘Abenomics’, which is about 80% spin and reminds me of Tony Blair and ‘New Labour’. It would be a lot better if ‘Abenomics’ did not exist, because all it is doing is printing money and dropping the currency, which is a zero-sum game.”
But as damning an indictment as it may seem, Atherton is not entirely disenchanted with ‘Abenomics’, and still sees some resultant openings on which to capitalise.
“The 20% of ‘Abenomics’ that is not spin is actually quite positive for the Japanese market, because it is transferring money from labour to capital,” he explained. “While it is a huge loss for Mrs Watanabe as the archetypal Japanese consumer, it is a huge benefit for companies such as Toyota.
“The size of the pie is not changing. So it is not necessarily great for Japan, but it is good for the stock market, and corporate profits are going up.”
While some are eagerly awaiting the impact of the third of Abe’s three arrows – corporate reforms – Atherton views it as a matter of companies implementing the change themselves.
“Japan is cheap, and that needs to be the message rather than getting wrapped up in what the Prime Minister is doing,” he said. “Abe will be gone in three years, so it is up to the corporates to drive it, and I think that they will do something.
“So far we are only seeing the low-hanging fruit. There are a lot of cash-rich companies paying a little more dividend and more share buybacks, but we have not yet seen any real corporate restructuring or any hostile M&A. There are too many companies in each sector and they are too small globally – this is the chance to do something about.”
Like many investors, Atherton spent the latter half of the summer sifting through the debris of the global equities rout in search of discarded gems, and his portfolio has subsequently undergone a significant weighting shift.
“Over the last few months we have been buying heavily into the commodities theme and China-related stocks,” he said.
‘Heavily’ is an appropriate description.
