Since 2003, most of the world's stockmarkets have raced higher, fuelled by easy credit and the yen c...
Since 2003, most of the world's stockmarkets have raced higher, fuelled by easy credit and the yen carry trade. In comparison, share prices in Tokyo have climbed at a sloth-like pace, with periods of progress being followed by frustrating periods of stagnation or even reversal.
Having not fully participated in the global equity market rally, it might seem unjust that the Japanese market has been punished as harshly as other, higher-flying global markets. But for the glass-half-empty brigade, it's not hard to find reasons to be gloomy about Japan.
The economy has slowed and inflationary pressures are yet to surface, leaving consumption weak and domestic demand sluggish. Thanks to corporate Japan's heavy reliance on exports, the recent strengthening of the yen will, if sustained, lead to downward revisions to earnings forecasts.
There are reasons, though, to adopt a more positive view. It seems increasingly likely that prices in Japan will start to rise this year as companies try to pass on higher raw material costs to the consumer. A bit of inflation would be a good thing, as it should lead to a pick-up in consumption and more investment in higher-return products (i.e. not cash).
Secondly, Asian growth - in particular consumption in China - remains strong. The Beijing Olympics will be a key factor in 2008. Although much of the construction related to this event has already been completed, expectations are high that Chinese consumption will grow rapidly in the run-up to the games, and perhaps kick-start a sluggish global economy.
Finally, to those who choose to regard their glasses as half full, corporate Japan offers plenty of cheer on a stock-specific basis. Whatever the Japanese economy does this year - whether the long-awaited recovery occurs, real estate prices rise and deflation is vanquished or not - Japan still has enough world-class companies to make investing there worthwhile.
- Strengthening of the yen could hurt overseas earnings;
- Inflation might encourage domestic investors into the equity market;
- Beijing Olympics will drive Asian growth in 2008.
- Keith Donaldson, head of Japan at Martin Currie Investment Management
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