Having spent almost the last three decades stuck in an environment of stagnation and deflation, it is little wonder that when it comes to Japan investors tread a careful path. The question always remains, what has changed and will it be different this time?
It is a fair question. However, perhaps buoyed by improved corporate governance, accelerating wage growth, the announcement of the expansion of fiscal policy for the first time in three years and a politically stable government that the rest of the developed world looks on in envy at, and it seems investors are getting tempted by the land of the rising sun once more.
This is evidenced by the large jump in global managers who are now overweight in Japan, with the BofA survey showing that versus a net 1% of managers who were overweight in the country in June, in July this surged to a net 18%.
So is it time to be looking at Japan again?
Jeremy Lang, co-founder and partner at Ardevora Asset Management, says that over the past six months he has witnessed genuine evidence of change and a reshuffling of company management priorities.
“Some Japanese companies are finally responding to efforts from Prime Minister Shinzo Abe, who is trying to undertake widespread corporate governance reform and create an improved shareholder-friendly culture,” says Lang.
While not all areas are responding, with Lang saying he has yet to see evidence of change in the traditional large and highly diverse Japanese conglomerates such as Hitachi and Panasonic, he argues change is occurring in the mid cap area. “These companies are operating simpler, more ‘Western’, business models,” he says.
For Archibald Ciganer, portfolio manager of the T. Rowe Price Japanese Equity Fund, the Abe-led Democratic Party has successfully broken the long-held tradition of policy inertia through its attempts to jump-start the economy and equity markets with the magnitude of its policy intent.
“Abe is also attempting to deal with the economy’s structural challenges,” he adds. “Corporate tax rates have been lowered, an enhanced corporate governance code has been implemented, while initiatives to encourage married women and foreign workers into the labour force have also been announced.”
