Japanese equities posted strong gains during 2005 despite periods of sharp volatility. Increasing confidence in the health of the domestic economy, prime minister Koizumi’s dramatic election victory and better than expected corporate results spurred the Topix index to a five-year high.Overseas investors were the dominant buyers of Japanese shares. Resource-related industries performed well, with stocks rising in line with global commodity prices. Those tied closely to the domestic economy, particularly banks and real estate, also enjoyed significant gains due to rising expectations of a sustainable recovery in domestic demand. I feel that a sense of renewed optimism is prevailing in Japan. The economy appears poised to exit its deflationary phase amid a broadening rebound in private consumption and investment. The banking system has shed the bulk of its non-performing loan portfolios. The unwinding of cross-holdings has led to an increasingly investor-oriented shareholder base, which has added impetus to corporate restructuring. Corporate profitability has improved and equity valuations are more attractive than at any point in the past decade, despite strong market rises. Expanding links with China are improving profitability and opening up new growth opportunities in emerging Asia. Most important, we believe that these trends are well entrenched and contribute to cementing the foundation for a sustainable long-term recovery in the Japanese stockmarket. Although the most recent economic growth figures for July to September slowed to an annualised 1.7 per cent from 3.3 per cent in April to June, the mechanisms driving Japan’s economic recovery have not broken down. The spectre of deflation appears to be receding with improvements in the job market and corporate earnings, along with increased private consumption. The effect of sustained deflation was to produce over a decade of misallocation of resources and consequent low growth in productivity. Reverting to a low level of inflation is likely to produce marked positive effects for a number of years, resulting in persistently impressive growth. The process has begun but is still in its very early stages. After struggling with high debt levels in a deflationary environment throughout the 1990s, corporations have repaired their balance sheets by reducing their excess debts significantly. Cost-cutting and restructuring efforts have helped profit margins and return on equity to hit 16-year highs. Free cashflow generation is at record high levels, supporting increases in business investment, mergers and acquisitions, as well as higher dividend payouts. With balance sheets strengthened, corporations should be able to shift their attention to pursuing new profit opportunities as the recovery gains traction. Improvements in the outlook for companies are finally providing a solid backdrop for employment. This will help sustain the improvement in the domestic economy. This provides a solid backdrop for the Japanese equity market but we do remain cautious about the near-term outlook for small-cap stocks. Share price valuations of smaller to medium-sized companies have already exceeded those of bigger companies. Although smaller companies’ earnings’ growth for the next year is expected to be stronger than that of big companies, the question remains whether it is strong enough to justify their premium valuations compared with bigger companies. In this environment, we at Fidelity believe that valuation analysis is critical for successful investment. By utilising an in-depth bottom-up stockpicking approach, we will continue to seek reasonably valued shares of companies that are strengthening their competitive advantages or developing new growth businesses in order to sustain their earnings potential over the longer term.
BM Solutions wants the mortgage market to follow Asda’s example of paying for rejected applicants to check their credit history. The HBOS-owned lender claims the move could help generate customer loyalty and help the fight against identity theft and fraud, as customers can view all mortgage, loan and credit card applications made in their name. […]
Paul McMillan finds Conservative vice-chairman Richard Spring leading a drive to get business backing the party
Mortgage brokers are saying people will benefit further by investing in property rather than in shares over the next five years but only just.The survey by UCB Home Loans says of 523 brokers, 55 per cent thought property would give them higher returns, whilst 45 per cent preferred shares.According to Nationwide, the FTSE 100 grew […]
If 2005 was the year of regulation, then 2006 will surely be the year of enforcement. Let us hope so. Initially opposed to mortgage regulation, I still maintain that the MCCB was doing a perfectly good job. The endowment misselling phenomenon wrought regulatory overkill, wherein the then regulator’s own culpability on unrealistic illustrative growth rates went unaccounted for.
As the US continues to confound growth expectations and the eurozone’s ‘will they, won’t they’ saga has finally concluded, what are the implications for global markets? James Dowey, Neptune’s chief economist, puts forward his outlook for 2015 and the key considerations for investors.
News and expert analysis straight to your inboxSign up
Latest from Money Marketing
Independent governance committees at big-name pension providers are failing to safeguard the interests of savers and the FCA must take action, fresh research finds. In 2015, the FCA required contract-based pension providers to appoint IGCs to act as champions of savers’ interests. IGCs are required to publish annual reports to increase transparency and encourage comparison […]
The FCA is reviewing the content of its pension transfer specialist examination standard in light of recent issues with pension transfer advice, Money Marketing understands. The regulator does not offer qualifications but it does have a role in setting standards for exams and publishes “appropriate examination standards” guidance. Money Marketing understands a working group, mostly […]
Building on auto-enrolment’s success and fine tuning the pensions dashboard are high on the list As I write my first Money Marketing column of the year, it has given me an opportunity to look back on what the Government has done to transform pensions and savings for people since 2010. Five years on from the […]