A report by J.P. Morgan Asset Management says Japan is now well positioned to take advantage of significant Asian and Pacific trading potential.
This optimistic outlook is given despite Japan's Topix index reaching its lowest point for 28 years last week. Nicholas Weindling who manages JPMorgan Japanese Investment Trust believes over the next year profit momentum should be relatively good as one-time factors such as the March 2011 earthquake and Thai floods of last autumn drop out.
"Japan recovered strongly after the earthquake, and the country is well positioned to take advantage of significant Asian and Pacific trading potential and benefits from escalating Chinese and other emerging market demand. While it is still a challenging market, long-term performance in Japan remains on an improving trend.”
Weindling says the positive outlook stems from recent elements of a rediscovered confidence in Japan and while he admits there are many macro-economic headwinds, company valuations remain compelling “especially while the market is still trading at the low end of historical ranges.” Further optimism can be found in the “notable improvements in corporate governance, dramatically higher exposure to growing Asian markets and a more aggressive pursuit of profit than has been the case in the past. Through continued focus on these beneficiaries of powerful secular trends, at a cheap valuation, we believe that the outlook for many holdings remains attractive."
He favours high quality companies with leading market share, strong balance sheets and improving shareholder returns. “The reason for this is we still expect global growth to be subdued for a protracted period and that only the strongest companies can succeed in this challenging environment. Additionally, we believe that Japan, by geographic chance, is fortunate to be located in the rapidly growing Asian region, and as such, in export sectors we hold stocks that will benefit from the growth of emerging market economies: companies such as Honda Motor, which has the number one position in motorbike markets including Indonesia and Brazil."
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