By Chris Tracey, investment director
2001 was another horrible year for Japanese equities. The damage was done by the complete failure of Japan to participate in the global fourth quarter rally. At the heart of the stock market's woes have been two factors.
The first has been the profound disappointment that the prime minister has failed to deliver on reforms. The second has been the deterioration of the economy as the year progressed, revealing in turn that the banking system remained in deep trouble.
The banking supervisory body, for example, estimated that bad loans at the end of the year represented 6.25% of loans against 5% three years earlier. These issues will continue to dominate at least the earlier part of the current year.
Because Japan's economy and its government have disappointed for so long it is probably reasonable to assume that any improvement on both fronts would have a disproportionate impact on the stock market, even if the latter was relatively short lived.
Valuations are now at levels from which these rallies have taken place in the past so our view is that being extremely underweight is very dangerous and indeed our global funds are now only marginally underweight. The real risk of investing in Japan currently, given the state of the economy, is at the stock level, so our Japanese portfolios are very much skewed to companies with strong balance sheets
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
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