Having outpaced growth in the US and Europe in three out of the past four quarters, the Japanese eco...
Having outpaced growth in the US and Europe in three out of the past four quarters, the Japanese economy is showing no signs of slowing, according to Neil Rogan, manager of the Gartmore Global Focus fund.
Rogan says: "We maintain a bullish outlook for the Japanese market. Macro economic data continues to paint a picture of steady economic growth and indices measuring both business and consumer confidence have recently reached levels last seen in the early 1990s.
"The Bank of Japan's latest Tankan survey shows large companies also plan to increase spending by 2.7% this year, which will provide the recovery with further momentum."
He says the fund's stock selection process has highlighted a number of opportunities in the financial sector, particularly in real estate and is overweight in Mitsui Fudosan and Sumitomo Realty.
The fund is also exposed to the capital markets through investments in Matsui Securities and Nomura Holdings. Rogan adds: "Surging equity markets have lured private investors back into the market, and with the Topix reaching its highest level in 14 years earlier this month, trading volumes are also soaring."
Hideo Shiozumi, manager of the Legg Mason Japan Equity fund, agrees and says despite the stock market fall earlier this year, triggered by an investigation into Livedoor, the acquisitive internet services company, the Japanese equity market had now fully recovered.
He says: "Although the market has fully recovered, since January there has been a flight to safety, meaning that small and mid-cap growth stocks, which we focus on, have suffered as investors move to large-cap stocks. But we believe this will be a temporary phenomenon.
"Our long-term strategy will continue to identify growth companies within retail and services sectors that are benefiting from a structural shift from large manufacturing companies to leaner, more service-oriented businesses."
Long-term holdings in the fund include Don Quijote, which is a discount retailer. Elsewhere, it is also favouring the property sector, which has been rising in value, not just in Tokyo but in other major cities as well, according to Shiozumi.
"We have gradually invested in this area over the last year and favoured examples include IDU, one of Japan's largest internet real estate auctioneers, which is one of our top 10 holdings. We also like Risa Partners and Zecs, which both specialise in buying and refurbishing old residential homes. Zecs also builds flats for the elderly, which plays well alongside Japan's ageing population demographic."
Elsewhere, Baring Asset Management predicts a surge in technology stocks and Japanese equities over coming months, as investors' appetite for risk increases.
However, Percival Stanion, head of asset allocation at Barings, says investors will need to keep a close eye on pressures building in the market.
"Consumer confidence in Japan is increasing to levels last seen at the end of the 1980s. This makes the market incredibly attractive, with high levels of consumer spending and bank lending figures confirming the recovery in credit demand.
"Investors should keep a close eye on this market as interest rates are likely to be raised at some point in the next six months, before Prime Minister Junichiro Koizumi hands over the reins of power, but given past mistakes we are confident the first moves will be tentative and very well signalled to avoid upsetting the markets."
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