The outlook for the Japanese economy could be described as dull at best, particularly when compared with other nations in the region such as China. However, commentators note that the potential for some Japanese companies to exploit particular niches is strong. There is a growing list of interesting companies in the internet area, for example, and many manufacturing firms supply equipment to Asia. Retailers with strong business models also continue to thrive.
Baillie Gifford, in announcing yearly results for its Japan trust this month, said the Japanese economy continues to recover after the global economic downturn and GDP growth this year is expected to be about 3.3 per cent. Japanese companies have rebuilt their profit margins, which in aggregate are back to previous peaks, and profit growth of about 20 per cent is estimated for the fiscal year ending March 31, 2011. Japan’s largest export market is Asia and growth is expected to continue there.
Within the Adv-iser Fund Indices there are four Japanese equity vehicles – CF Morant Wright Japan, GLG Japan core alpha, Jupiter Japan income and Neptune Japan opportunities.
Ashcourt Rowan head of research Tim Cockerill says Japan has always been a difficult market to understand. He says: “We are judged against the benchmark. In broad terms we have a benchmark that is about 5 per cent in Japan. In a portfolio we typically have had a benchmark weighting. Sometimes we have been a bit over or a bit under but we have never taken a major position either way. I have listened over the years to many Japan fund managers who say it is on the verge of doing well.”
Cockerill holds the Morant Wright and GLG vehicles, which he says do things differently. He says: “The manager of the GLG fund Stephen Harker would argue that Japan has been through the financial crisis the West is facing. The banking sector has seen huge changes and consolidation. This could be what will unfold in the West. His argument is Japanese banks are on a much better footing than many of their Western counterparts.
“Currency is a big influencing factor and it remains a tricky one to assess. Japan has some global leading industries. The big companies put high quality products into the marketplace, such as Sony, Canon and the car companies. A pick-up in sales should go through to the bottom line. There is also the domestic market story, which the Morant Wright fund is playing. These companies are cheap but predicting whether they will perform and when is much harder. We are long-term holders of that fund and it has done well but in the short term Japan will tread its own merry course.”
Adviser Fund Index data supplied by Financial Express