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Investment: Japan comes in from the cold
Have you ever read an article by a fund manager explaining that his idea of stock-picking is to simply follow, sheep-like, other managers into buying the most popular stocks on the market? Of course not. They all tell us that their special money-making skill is spotting the investment opportunities others miss. Unfortunately his is nonsense. Most fund managers follow trends, says Merryn Somerset Webb
For proof, look no further than Japan. This is the world's most hated market: according to consensus opinion it offers no growth at all and is over-priced. Yet things really are not that bad. Sure, Japan's economy may not be growing at the speed of China and India, but after well over a decade of slipping in and out of deflationary recession, it has been expanding at a reasonable speed for four years (2.3% in 2007 on IMF figures). Consumer spending is likely to rise satisfactorily this year, while property prices are finally up in most cities.
The corporate world looks good too: balance sheets are healthy, debt levels are low; there are signs that merger and acquisition activity is increasing and many firms are raising dividend payouts. And as for price, Japanese stocks actually offer very good value.
According to old Japan hand Scott McGlashan of JO Hambro, they are priced at their cheapest levels for 25 years on almost every measure. Finally, Japan has few of the problems of most developed economies. It has high levels of savings and its economy is less exposed to the USA than it was a decade ago: Japan exports more to Asia than to Europe and the USA combined, so should the American economy really tumble, it has a degree of built-in protection.
But does that mean our fund managers are rushing in? Far from it. They spent most of 2007 selling, and I suspect they will regret this in 2008, particularly as the Japanese are beginning to buy into their own market. For years it has made sense for them to send their money abroad – in countries like the USA they received much higher rates of interest on cash and better returns on equities, as well as currency gains as the yen fell against the dollar.
However, the interest rate differential is not as wide as it was, while once profitable foreign markets are beginning to look unstable and the days of the strong dollar appear to be over. So they are bringing their money home, which could easily spark a healthy rally in their stock markets. You can buy into Japan by way of an Exchange Traded Fund such as the iShares MSCI fund, which tracks the market as a whole. I also like the Fidelity Japan Value fund.
* Merryn Somerset Webb is the editor of Moneyweek and writes a column on investments every month in Saga Magazine. Her opinions are her own and for general information only. Always seek independent financial advice.
* This article first appeared in the January 2008 edition of Saga Magazine
