While the new economy sectors of Japan are still being hurt, old economy areas are driving the marke...
While the new economy sectors of Japan are still being hurt, old economy areas are driving the market into positive returns. For the year to 28 June the Topix index is up 0.27% in yen terms.
The best performers in the index are those companies in the resource area of the market, with the oil and coal sector leading the way with returns of more than 34% since the start of the year, according to statistics from Bloomberg.
Other sectors among the top 10 performers in the Topix include mining, fish and farming and electricity and gas.
The Scottish Widows Japanese Growth Unit Trust and the Japanese Trust both focus on value mid-cap companies and sectors that have seen restructuring, like chemicals, paper and steel.
While corporate restructuring is seen as running smoothly, characterised by the consolidation of business portfolios and merger and acquisitions through the region, doubts remain over the banking sector.
Anne-Marie Main, head of Japanese equities at Scottish Widows Investment Partnership, says: 'The banking sector is still producing some abysmal figures with slim margins and non-performing loans. Japanese banks are under-capitalised and the proposals by the government have led to nothing concrete so far.'
Investec Asset Management fund manager, Philip Whittome, says he is gradually becoming bullish on Japan again because of what he calls a remarkable re-igniting of the momentum towards reform. 'The major element in this new-found bullishness on reform prospects has been the totally unanticipated election of Junichiro Koizumi, a radical reformer leading a crusade to restore Japanese strategic competitiveness,' he says.
'His policy platform has yet to have all the details filled out, but the initial outline appears to include all those good things that Westerners have been asking for. However, it has been largely ignored on almost universal expectations that he will be unable to implement anything.'
This is all happening while the Japanese market is as cheap as it has been since 1975, relative to other major stock markets and in absolute terms, according to Whittome.
As of 28 June, the Nikkei 225 index was on a P/E of 77.74 times while the Topix was on a P/E of 95.11.
This compares to a P/E of 36.41 times for the FTSE All-Share.
Japanese investment manager at Edinburgh Fund Managers Adrian Hickey says: 'The market bottomed out in March and had a rally as the Bank of Japan set up specific monetary targets for the first time and Koizumi announced reforms.'
The upcoming election does raise some uncertainty about the future political leadership of Japan, although Hickey claims the country is adopting a 'wait and see' attitude.
'The Liberal Democratic Party was losing the election before the appointment of Koizumi, but now there is a possibility it might win and extend its term,' he says.
Momentum towards reform from Koizumi.
Massive reflation from central bank.
Market currently looking cheap.
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