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Will World Cup win over Asian markets?

Some fund managers are using the World Cup to highlight the factors that they believe make Japan an attractive investment proposition.

With the eyes of the world turning to the Far East for six weeks in June and July, Britannic is urging investors to reassess their views on Japan and take advantage of an economy it believes is on the brink of a strong recovery.

Its optimism stems largely from the view that Japan&#39s programme of restructuring coupled with its global growth will lead to a strong profit uplift later this year.

Britannic head of Japanese equities Natasha Chetwynd says: “There is no doubt that Japan has been a volatile market over recent years. But the difficulties it has faced have encouraged the start of essential corporate restructuring and the survivors will be will placed to take the lead in a competitive market.”

Her assessment is well supported by IFAs and fund managers but the question remains whether the World Cup – as Britannic contends – could “pave the way” for a recovery in Japan and, to a lesser extent, co-host South Korea.

With close to 500,000 people expected to arrive in the region for the World Cup, there is no doubt that some stocks – airlines, railway companies, breweries, advertising firms and hotel chains – will benefit to a certain degree. But, as Rothschild Five Arrows assistant director for Japanese equities Stuart Cox points out, it is industrial, not service, stocks such as steel that are performing well and driving the economy at present.

He does see cause for some optimism but believes it will depend on how the home teams – rather than the tournament itself – perform over the coming weeks.

He says: “The big thing will be how well the Japan football team does in the World Cup. I think that will determine how much of a boost there will be. I personally do not expect Japan to get through to the second round but if they do it may build up more enthusiasm in the region and provide a lift to the market.”

Japan will have to overcome Russia, Belgium and Tunisia to progress and if there is a rise in the market it will be a relatively minor one. Cox does not expect the World Cup factor to account for more than 0.3 per cent of Japan&#39s GDP in the best-case scenario and says he will not be recommending to clients invest in the country simply because it is a host.

However, some IFAs take a slightly more positive view. Plan Invest investment manager Paul Barnes says if the tournament is a roaring success it may provide Japan&#39s prime minister Junichiro Koizumi with the chance to put through economic reforms that at any other time would have been considered political hara-kiri.

He says: “It is difficult to estimate the impact but you only have to look at someone like Harold Wilson, who said England winning the 1966 World Cup saved his political skin, to see how much of an effect football can have. If the football fever sweeps through Japan like it did in England during Euro 96 it could give a political opportunist like Koizumi the chance to make some much-needed changes.”

Even so, Barnes says he is undecided on how much difference the World Cup could ultimately make to the markets in Japan and Korea and believes it is not going to help people decide whether to invest there or not.

However, there are some who fear the tournament could inspire investors to plough money into the region without taking the time to consider the long-term implications.

Hargreaves Lansdown senior analyst Meera Patel says the fund managers she is in contact with are being more upbeat about Japan than they have been for some time but it is not the World Cup which is driving their optimism.

She says: “If many investors do get dragged into Japan because of the tournament it will be a shame as it is only going to provide a short-term boost to the economy. It is not going to solve its inherent political and economic problems. The company restructuring that has been going on still has some way to go.”

Credit Suisse joint head of multi-manager service Gary Potter agrees, saying Japan has some lessons to learn from South Korea, a country he believes has taken greater strides than its neighbour to restructure and reinvigorate its domestic market. But in terms of the impact the World Cup will have on South Korea, he says it will be the same as for Japan – virtually non-existent.

In fact, Cox says there is even a chance the World Cup could have a detrimental effect. If the Japanese market could be lifted by its team performing well, then he says the opposite could also be true. If they perform badly, the market could become mildly depressed.

Either way, most experts believe the World Cup will cause more of a ripple than a splash in the South Korean and Japanese markets, with one saying there would have to be five tournaments running concurrently to make a real impact.

As Potter says: “Football is just a game. I am not going to base my judgement on funds on a tournament that only lasts for a few weeks. The markets run a little deeper than that.”


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