Fund managers are split as to whether the Japanese economy is in a bull or bear phase. Michael Tho...
Fund managers are split as to whether the Japanese economy is in a bull or bear phase.
Michael Thomas, Japanese fund manager for Martin Currie, takes the bullish view. He says: "Private capital expenditure has the highest multiple effect on the economy at the moment and from this we believe the economy is in a reasonable stage."
He adds: "Private capital expenditure has been driven by three factors: new technologies; IT spending, which has been way behind the US and Europe and is due for a structural pick up; and corporate profitability, which has risen by 40%, up from the previous year."
Supporters of the bear view believe consumption in Japan is falling. The Japanese are not spending but saving. People are concerned about their future as many are in part-time employment and the smaller retailers in Japan are struggling.
However, Thomas believes consumption remains positive because corporate profitability is increasing and people will receive larger bonuses at the end of the year.
However, despite a stronger economy, the market is down. This is because of four factors. First, because of the unwind of cross share holdings ??? has recently accelerated, although this should be reduced from the end of March. Second, there has been a fall in the Nasdaq and concerns regarding TMT stocks.
Third, there are worries about excess supply, the government is privatising the NTT and there is a raft of other companies coming onto the stock market increasing concerns about excess supply. Last, there is talk from indices players that there will be a free float of all firms, which will reduce the Japanese weighting.
Thomas adds: "The political situation continues to remain volatile with the upper house election next year, which is not helping the stock market."
Anne-Marie Main, investment director head of Japanese equities at Hill Samuel, says: "The economy looks better than expected, there is a lot of capital investments and industrial output. Exports are high and are strong to the US, Asia and Europe."
Consumption has stabilised and GDP is picking up about 1.7%. Main also says the stock market is weak. She adds: "What seems to be happening is as companies approach their interim results, the trend is to sell cross holdings."
Supply has increased in the market, while people are being selective about what they buy.
"As we move into the interim season we should see corporate profits upgraded, which should be good news for the market. By October the supply and demand outlook should be better," adds Main.
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