60 seconds on the most predictable element of investing in Japan
Andrew Rose explains why the geopolitical backdrop should not distract investors from positive company-level changes in Japan.
Influence of geopolitics
Japan has been subject to a number of macro influences over the past 12 to 18 months. First of all, there were negative interest rates; then there was Brexit; following that, you had the arrival of Donald Trump as US president; and latterly, you’ve had the issues on the Korean peninsula.
Negative interest rates have had an impact on financial share prices. Brexit had no particular direct impact in Japan but it led to risk-off sentiment generally. Donald Trump has been both a positive and a negative: positive in the sense that he has been good for the prospects of global growth, and negative in relation to protectionism. Of course the Korean issue is one that will be ongoing for Japan.
Positive news at company level
So, while these macro influences are not going to go away, what is of some comfort for the Japanese equity fund manager is that there is a lot happening at the company level. For example, although company profit forecasts are conservative, it is likely that they’ll go up this year. On the basis of that, valuations look pretty compelling in a relative sense.
In addition to that, you’ve got changes in corporate governance which are positive for shareholders and should boost return on equity (ROE). So you can’t ignore the macro but I think what’s happening at the company level is more interesting and also more predictable.