According to investment company managers who run Japan vehicles, Japanese prime minister Shinzo Abe’s administration brought optimism to Japan in 2013. That, combined with strong corporate performance, bodes well for Japan this year.
This is reflected in returns from the Japan and Japanese Smaller Companies Association of Investment Companies (AIC) sectors over the past 12 months. While the average investment company was up 15% over one year to 31 December 2013, the Japan sector average was 46% and the Japanese Smaller Companies sector rose by 34% over the same period.
Three-year figures are positive too, reports the AIC, with the Japan and Japanese Smaller Companies sectors each outperforming the average investment company by 21% and 23% respectively.
Nicholas Weindling, manager of the JPMorgan Japanese Investment Trust, believes Japan’s outlook for 2014 remains good. “While many commentators question the sustainability of the uplift from Abenomics, with doubts centred on the ‘third arrow’ of structural reform, we feel these doubts are overplayed. In fact there is significant structural reform already in play.
“One development that we have already seen has been the decision by Japan to enter negotiations to join the Trans-Pacific Partnership free trade area. We believe this is a very significant personal achievement of Prime Minister Abe, who has overcome objections from farmers and other protectionist groups that had prevented his predecessors from entering free trade negotiations.”
Kwok Chern-Yeh, who manages the Aberdeen Japan Investment Trust, sounded a note of caution, saying the jury is out on whether Abe will succeed in completely pushing through structural reforms to create sustained growth: “Ensuring the full implementation of the reforms remains an uphill task in the face of vested interests. However, Japan is home to numerous great companies, many of which are global leaders in their respective industries, and have shown remarkable adaptability through years of stagnation.”
Overall investment company managers see plenty of opportunities to take advantage of change in Japan.
“There are many changes, both in the economy and in less visible subtle sea-changes in attitudes, which we believe are encouraging,” said Sarah Whitley, manager of the Baillie Gifford Japan Trust.
“It is not that ‘old’ Japan has vanished but it is smaller and less important and can be ignored, particularly by active investors such as ourselves. We continue to find exciting opportunities in internet related areas and in companies whose business model attacks the old and inefficient.”
