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Adviser Fund Index

Adviser Fund Index

Japan is the world’s second-biggest economy and home to some of the best known global brands but after nearly two decades of disappointing performance the country is seen as the land of the perpetually almost rising sun.

In yen terms, over the past two decades to April 2, the Nikkei 225 index of Japan’s leading shares is down by 61.47 per cent from its peak in 1990, according to Financial Express. There have been numerous market rallies in that time but the general trend has been a decline since the Japanese asset price bubble burst so spectacularly at the start of the 1990s.

Despite the pessimism of the past 20 years, there appears to be an endless line of people willing to stick their neck out to predict Japan’s next bull market. But the heralded rebound has yet to occur and much of the bullish sentiment that greeted the election results has begun to wane.
“We do not actively allocate towards Japan,” says Chartwell investment research manager and Adviser Fund Index panellist James Davies.

“We do have a healthy exposure to global funds, which might buy into some Japanese multinationals but I cannot see us actively looking to buy into Japan in the near future.”

Not all AFI panellists share that sentiment.

Whitechurch Securities head of research Ben Willis says Japan can be used as a tactical play in certain market conditions. “We took a position in Japan last year as a short-term tactical play as the market was looking cheap compared with other developed markets,” he says.

Willis says a distinction can be made between a rather unconvincing domestic story and the Japanese export market. He says that demographic problems caused by the country’s aging population and low birth rate coupled with a lack of domestic equity investment can make domestically focused companies look unappealing, but global brands based in Japan can benefit from the country’s proximity to major Asian growth markets.

One problem that must be overcome is the currency risk associated with investing in Japan. The Nikkei has plummeted by over 60 per cent in yen terms over the past two decades but in sterling terms the market has fallen by only 3.76 per cent.

Willis says: “We invested in Neptune Japan opportunities because the strong yen meant we were looking for a manager who was hedging back to sterling but there are still too many factors that could have an impact on the economy for it to be a buy and hold position.”

Davies remains unconvinced as the country has repeatedly defied conventional investment logic to remain stuck in its economic malaise. “I suppose there is an argument that it has demonstrated some diversity benefit but most will admit that timing it is usually as much luck as skill,” he says.


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