Performance of Japanese equities has been disappointing of late. For example, Topix finished down 0....
Performance of Japanese equities has been disappointing of late. For example, Topix finished down 0.9% in November vs some 7% gain in MSCI AC World Free index expressed in yen. Unfortunately, Japan remained an unattractive market for foreign investors, leaving it at the mercy of domestic fund flows dominated by crossholding unwind. Foreigners have been net buyers lately but not enough to support the market.
The macro picture has deteriorated further: unemployment for October inched up 0.1% to a record 5.4%, while domestic auto sales for November plunged 9.3% year on year. Household spending remained weak and is unlikely to improve any time soon.
At the corporate earnings level, interim results showed 30%-plus decline in recurring profits, with some 20% of listed companies planning to either cut or eliminate dividends this fiscal year.
Technology shares performed well on expectations of a recovery in consumption and IT demand in Japan's major export markets. Autos were also strong on the back of a cheaper yen. The worst performing sectors included defensives such as electric/gas utilities and railroads. The insurance sector was heavily hit by the bankruptcy of Taisei Fire & Marine. The banking sector continued to be sold heavily.
There has been little tangible progress in the most important part of Koizumi reforms ' cleanup of the banking sector. There have been achievements in secondary areas but overall the reforms effort has lacked the focus and intensity the market had anticipated.
Basil Masters is chief investment officer at CrÃ©dit Agricole Asset Management, Japan
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