It is Japan's regional rather than national banks which offer a good investment opportunity, says Ia...
It is Japan's regional rather than national banks which offer a good investment opportunity, says Ian McCallum, fund manager at Bedlam Asset Management.
McCallum says all of the regional banks Bedlam had invested in, apart from 18th Bank, had announced full year results ahead of expectations and pointed out lending margins are widening as a consequence of recent rate hikes. He says: "Regional banks have the greatest exposure to the small-medium sized corporate sector. This accounts for 75% of their loan book and is the sector in Japan that is showing the fastest improvement."
McCallum also cites signs of industry consolidation among the regional banking sector. He says he is less interested in the national banks at present as they serve the larger corporations and multinationals which are cash-rich and hence in need of little credit.
McCallum also says the office market in Tokyo looks promising, pointing out that the vacancy rate was 2.8% at the end of last year and looks set to fall further.
He adds demand outstripped supply last year and as building starts continue to slow this will tighten further. Consequently Bedlam has invested in Kenedix, a real estate investment adviser that specialises in commercial property and Mitsui Fudosan, a commercial property fund company.
Toshihiko Okino, analyst in the Japan equities research team at UBS, also sees opportunities in commercial real estate. Land prices are rising and UBS is overweight in Mitsubishi Estate which has been redeveloping some of the buildings it owns in the commercial Marunouchi area and has seen profits rising as a result.
On the issue of domestic consumption, McCallum says: "While product purchases haven't risen, household spending has been up for the last five months and sales of services and leisure activities have benefited." Bedlam is highlighting opportunities in airlines, travel agents and hotels and has weightings in Resort Trust, a chain of membership hotels, resorts and restaurants.
Takashi Omori, economist in the Japan equities research team at UBS, believes that the upward trend in domestic spending should accelerate. As reasons, he cites an increase in labour income, a further increase in dividend income on the back of strong corporate earnings and the baby boomers reaching retirement age and receiving pensions.
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