2018: which asset classes could continue to defy gravity?
With both equity and bond markets showing no signs of letting up their stellar gains, it has become...
On 5 December 2012, Shinzo Abe was elected prime minister of Japan and launched his extraordinary stimulus programme ‘Abenomics’. It’s been an eventful, but largely successful, five years. The Nikkei has risen 112%* surpassing the 22,500 level for the fist time since 1991 and, fresh from another landslide election victory, Abe has been given a clear mandate to progress with his policies.
I think the Japanese stock market has further to go and here’s why:
There are of course risks as well as opportunities. Abe will need to overcome a number of obstacles in order to end finally economic stagnation. The first is inflation. While it is in positive territory, it remains some way off the Bank of Japan’s 2% inflation target. Meanwhile, the country’s low birth rate and ageing population represents another challenge to economic growth.
However, in spite of the headwinds, I feel excited when I think about the path ahead for Japan. Five years in power and armed with a fresh mandate, I think Abe will succeed in driving further positive change. Japan, in my view, warrants a long-term allocation.
Baillie Gifford Shin Nippon: This trust is the best-performing Japanese fund since Abe became prime minister. It has returned 358%* and is number one out of 75 different funds and trusts in the IT and IA Japan sector. It invests in smaller companies and is currently trading at a premium of 9%***.
Baillie Gifford Japan Trust: This is the second best performer of the period, returning 315%*. It is run by the same team but is the slightly less risky option as it invests in medium and smaller companies. It is also currently trading at a premium of 7.5%***.
T. Rowe Price Japanese Equity: This fund invests in Japanese companies of all sizes, although with a notable overweight to smaller firms. The manager adapts his investing style as needed to suit changing market conditions. It has returned 144%*.
Schroder Tokyo: This fund was launched near the peak of the Japanese bubble in 1989 and has had only two managers during its lifetime. It has benefited from the cautious, quality-orientated strategy adopted by the management team. It has returned 121%*.
Man GLG Japan CoreAlpha: The team focus exclusively on large and medium-sized value companies, in the belief that this area of the Japanese stock market outperforms around 70% of the time. It has returned 150%*.
*Source: FE Analytics 5 December 2012 to 23 November 2017, total returns in sterling.
**Source: Investment Association sector statistics, August 2017.
***Source: The Association of Investment Companies, 27 November 2017.