Japan is likely to outperform the US in the long term, according to Nick Greenwood, fund manager of ...
Japan is likely to outperform the US in the long term, according to Nick Greenwood, fund manager of the Christows Accelerated Growth Portfolio.
Greenwood currently has 9% of the fund exposed to Japan and says he may take it higher. He says: 'Over the longer term there are a whole range of Japanese companies that in the past have not been run for profit but for the benefit of the community, management and staff.' These companies now offer growth potential.
He adds: 'The way companies are run has been changing with a new consensus for reform that has been built, which is why Koizumi was elected. If you have all these companies that start to be run for profit, the earnings per share growth will rise quite sharply even though the economy is stagnant. If you get a fair wind and the economy picks up, I think Japan could be very exciting.'
Lesley Lathe, Japan fund manager at GAM, says that while restructuring in Japan has been pretty slow, one has to remember that companies tend to wait until they are losing vast amounts of money before they do something about it. She says there is not the same speed of reaction as there is in the US because Japan is not a true capitalist economy. Capital is not king as it is in the US, and she does not see this changing.
Sarah Arkle, chief investment officer at Threadneedle, says if world economies recover on the back of all the fiscal and monetary stimuli being put in, Japan should benefit from this cyclical upturn.
She says the question is whether Japanese companies restructure enough to bring themselves into a similar level to their Western counterparts. She says that the restructuring has not been as fast as they would have liked, but as they started at low levels with profitability well below the US and Europe, this does leave them scope to go on and outperform.
Because of this, Arkle says, Threadneedle has been moving up its exposure to Japan against the benchmarks from an underweight to neutral position.
Arkle says: 'We just need to wait and see whether the companies can unlock their restructuring potential, as pick up in world economies would be net positive.'
Robert Burdett, joint head of multi-manager services at Credit Suisse Asset Management, says the house view is to be marginally overweight in Japan and neutral in the US, yet he says this is always subject to change.
'We focus on funds that have taken a positive view on restructuring stocks in Japan as that is where the best returns will come from,' he says. 'In the past, the best returns came from the international exporters like Sony. However, the outlook for these international exporters is to be less dominant in the domestic market because of the slowing growth rates and lessening consumer confidence in the US. The more domestic-orientated stocks and domestic speciality retailers should do well.'
Burdett says a question for Japan going forward hangs over the currency, which could weaken further. He says Credit Suisses's policy is to look at the positions of the different fund managers to see who is hedged and who is not. He currently favours Schroder Tokyo, Polar Japan, Martin Currie Japan and Close Finsbury Japan.
Japan should benefit from cyclical upturn.
Companies restructuring for profit.
Domestic-orientated stocks should perform.
Cautious, Balanced & Dynamic Growth
Cowardly, boring or sensible
Latest news and analysis
‘Most significant’ upgrade since launch
Changes happening over coming months