Around 10% of Japanese firms produce 90% of Japan's corporate earnings, according to Frederic de Mer...
Around 10% of Japanese firms produce 90% of Japan's corporate earnings, according to Frederic de Merode, portfolio strategist at Fidelity Investments.
He says: 'It may not be very flattering for the remaining 90% of companies, but it is certainly interesting for those investors who recognise the privileged 10%. As ever, the huge levels of debt circulating around corporate Japan may make perfectly sound operating firms look like candidates for junk bond status.'
He says that despite very real problems, there are positive signs the Japanese government is beginning to act on its election promises, something many had thought they would never see. 'Most global strategists attempt to spell out the Byzantine complexities of the Japanese economic and political system and its awe-inspiring ability to keep struggling through what has been an economic wasteland for so many years,' he says. 'Japan's market bubble in 1989 arguably surpassed even the tech bubble effect on the US in 2000. Yes, they are struggling with deflation, but unemployment still lies at about 5.7%.'
But, he says, there are also signs the Koizumi regime is getting tired of compromise and policy evasion. As a result, it may begin to act upon its original intentions and tackle political reform, which could lead to economic reform as well.
The prime minister's appointment of a new finance minister in September was a bold move that has set the wheels of change in motion, agrees Ross McFarlane, portfolio manager, Japanese equities, at Britannic Asset Management.
The new minister has put together a task force to change the banking sector, which looks set to make radical changes.
The Resolution and Collection Corporation, a government body, is likely to buy loans from the banks at favourable rates, he believes, which will be a start in improving Japan's banking turmoil. He is overweight exporters, believing they will benefit from an improving situation in the US and a weaker yen. As a result, he is underweight on cyclical domestic stocks and the banking sector.
Nigel Richardson, investment strategist at Axa Investment Managers, says he would normally be overweight Japanese equities at this stage in the cycle but is trimming back positions due to the various market risks.
His cutbacks are mostly in cyclical stocks and Axa has a defensive stance with positions in utilities, healthcare, consumer staples, energy, and financials.
'The key thing is an announcement by the Government on banks' non-performing loans,' he says. 'It is going to be more rigorous in its classification of bad loans and will provide more capital for banks prepared to write them off to take loans off banks' books and stimulate activity in the economy.'
The flipside of this is what happens to the original borrower. It is not clear at this stage how the corporate sector will handle any changes, he says.
Goldman Sachs' analysts say the proposals are unlikely to unravel the oversupply in the banking sector or provide necessary the 'hard landing' to the sector to result in an effective and long-lasting shake-out.
Positive moves by Government.
New finance minister has been appointed.
Some banks likely to go bust.
10% of companies produce 90% of profits.
Reforms will hit consumer confidence.
Questions remain over Koizumi regime.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till