And (2) nothing is going to change on 1 January just because it is the first day of a new year…although this does not stop forecasters and planners from assessing what will.
2014 is all about…
One investment that will upset all investors looking for a distinct shift on 1 January is Japan whose markets at least have had a cracking year. The Nikkei 225 is up 52.6% year-to-date (66.6% in the past 12 months); the equivalent figures for the Topix are 48.8% and 62.5%.
Looking at fund performance, the best-performing IMA sector year-to-date is US Smaller Companies (33.93%) with Japan Smaller Companies just behind it at 33.92%; Japan is the sixth-best performing sector (24.5%).
These figures are relative to the IMA sectors’ performance in 2012 which sees both Smaller Companies (5.75%) and Japan (3.49%) towards the bottom of the pile.
The closed-end world was also dominated by Japanese trusts, with the specialist Macau Property Opportunities the top-performer (up 85%).
So what about 2014? Does a good 2013 mean, relatively, a poor 2014 to come? Or are there certain fundamental indications, macro or corporate, that are positive indicators through 1 January and beyond?
All things being equal, my money is on 2014 being another good year for Japan and those investors who may have missed the early growth still have plenty of scope for positive returns.
This is not without risk as what is given with one hand – the government’s 18.6trn yen (£116m) stimulus package – is taken with the other – Q3 growth of just 0.3% shows that Prime Minister Shinzo Abe’s reforms may be hitting their own barriers.
Outside the Japan equity fund managers – who are understandably optimistic – the experts offer the same give-and-take argument.
…give and take
“We remain positive on Japanese equities though the government now faces the delicate task of dealing with politically sensitive structural issues, such as the reform of the labour market,” says Andrew Cole, investment manager, Baring Multi Asset Fund. “We are confident that government policy is heading in the right direction and that the necessary adjustments will be made. However, the first months of 2014 will be crucial for Japan and we remain vigilant.”
Backing up Abe’s reforms, John MacDougall, manager of Baillie Gifford Shin Nippon, says: “There appears to be a uniformity of purpose and support across political executive and legislative bodies as well as amongst corporate Japan and individuals. The Japanese yen has weakened and the consumer and corporate sectors are showing signs of buoyancy.”
All in all, Japan’s government policies seem to be working (with the caveat that nothing trends in a straight line); its ageing population is a long-term concern not a 1 January 2014 concern; it has its own currency and its own central bank so has greater policy controls to hand; its huge levels of debt can be countered by the vast amounts of cash being horded by corporate and households, with companies in general being in a relatively – that word again – strong position.
The emphasis for investment in Japan in 2014, as is the case looking back at 2013, is to pick the right stocks or the right stock-picking fund managers but, either way, the outlook is a solid one considerably beyond 1 January.
