Evidence showing implementation of corporate restructuring plans is leading fund managers to be incre...
Tomoko Fujii, analyst at Goldman Sachs, says: "First-half financial year 1999 business results confirmed successful restructuring efforts among manufacturers, setting the stage for sharp profit gains once final demand picks up.
"The ratio of selling, general and administrative expenses to sales turned down for the first time in the current cycle. At the same time, the pace of reductions in employees and tangible fixed assets accelerated. Additionally, waning fears of a 'credit crunch' eased the need for precautionary borrowings, allowing companies to slash debt and debt service costs."
Corporate profits remain on track for a steady recovery, according to Fujii.
"Consolidated recurring profits for 895 non-financials listed on the TSE First Section are likely to rise by 14.5% in fiscal 1999 and by 25.6% in fiscal 2000. Despite a probable yen firming, better cost performance and rising aggregate demand should accelerate profit gains.
"Profit improvement should also foster a recovery in capital spending and a rise in bond yields, and would be consistent with a somewhat firmer yen.
"Rising overseas demand should sustain the export recovery. Export volume rose by more than 3% year on year in the first eight months of financial year 1999, despite the 10% rise of the yen on a real trade-weighted basis.
"Overseas demand expansion is likely to persist - growth in Japan's key export markets is likely to edge up to 4.2% in 2000 from an estimated 3.87% in 1999. However, an unexpected yen surge would pose a distinct risk to corporate profits. In addition to the negative impact on exports, a stronger yen would probably dampen business sentiment, investment and hiring."
Paul Kirkby, manager of GAM Japan, says: "Japan now offers an intriguing opportunity. There has been a shift in management attitudes in favour of refocusing on profits and core competencies, which has got investors excited.
"Data suggests that, economy-wide, profits have grown despite a drop in revenues, which would mean restructuring is for real. Even though the economy itself may be subdued, as stockpickers we can find opportunities within the stock market.
"Technology stocks have been the stars in 1999. Although valuations reached high points there will be opportunities, as there will be in the financial area, in some of our favourite stocks such as ORIX and some of the stock brokerage companies where we have built our exposure in the last few months."
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress