By Robert Stark Hidehiro Tomioka of Invesco and Nicholas Edwards of Credit Suisse Asset Management t...
By Robert Stark
Hidehiro Tomioka of Invesco and Nicholas Edwards of Credit Suisse Asset Management told delegates at the Investment Week Market Forum that Japan had turned the corner and its equity market was on an upward path.
Despite the optimistic projections for the market, they also acknowledged that the political forces and government interventionist policies were still significant in Japan.
They were split on the impact of Japanese demographic changes on the stock market. Edwards, who is managing director of Japanese equities at Credit Suisse, said the impact of the aging population has been overstated in discussions of Japanese equities.
In contrast Tomioka, who is director and head of research for Japan at Invesco, said that the projected changes in demographics had been used by the group to highlight future growth sectors such as healthcare and financial services.
They also disagreed over concerns that the yen might devalue. Edwards said Credit Suisse had no fears of a devaluation as the Japanese recovery would see the world paying more for Japanese assets. Tomioka said: "In the short term the yen may appreciate slightly because of the recovery, but mid to long term we are looking for it to devalue. The main reason is the monetary situation in Japan. We believe that at some stage monetary growth must accelerate. The Bank of Japan has to pump more money into the system to get the country back onto its potential growth track."
Tomioka, whose speech was called "Japan - back from the brink?" said that the most important driver in the recovery is growth in production, particularly in electrical manufacturing.
He said that profits are improving and that there has been a mild recovery in private consumer spending. However, private spending on mobile phones and the internet was up by 20% on a year ago. Spending on housing, recreation and clothing is still weak by contrast.
IT spending is also high, and it is one of the market's best performing sectors and, along with communications, is the most powerful driver leading Japan's growth.
Tomioka said: "Most of the tech, media and telecoms sectors went up strongly at the end of last year and we have had in some cases sharp corrections this year, but our view is that this is somewhat technical and the fundamentals are still intact.
"Growth is concentrated in specific areas so stock-picking will be very, very important."
Edwards, who spoke about the new Japan, said Japanese fund managers had had a very tough 10 years prior to the start of the recovery last year.
He said that there is still "tremendous negativity" towards Japanese equities, and an unwillingness to believe that the over-regulated, interventionist Japan has changed.
He warned delegates: "You should only be investing in Japan if you believe that corporate management is embracing the need to change to produce competitive returns." He argued that structural change was taking place and used Sony as a prime example of an old Japan company transforming itself into a leader of the new Japan.
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