A year on, Japanese economy ready to pick up, Invesco says

A bit more than year after Japan was hit by the earthquake that temporarily crippled its economy, economic momentum in the country is picking up, according to global investment management firm Invesco.

While the strong yen and the European crisis continue to pose challenges, Invesco is quite positive about the long-term prospects for Japanese equities.

“Of about 3,600 listed companies in Japan, more than 60% are trading below their book values, with numerous global leaders being among them,” said Kunihiko Sugio, chief investment officer and chief portfolio manager at Invesco Japan.

According to Sugio, companies are growing their business outside Japan and have trimmed their cost structures by selling non-core assets and focusing on competitive core businesses.

“Japanese companies are becoming well-positioned to achieve a higher return on equity even with only a small increase in revenues. This may lead to a revaluation of the currently cheap Japanese stocks,” he said.

Based on Nomura’s estimates for 2012, Japanese earnings growth is expected to be the strongest among the major regions at 36.6%, compared to 6.0% for the US, 3.5% for Continental Europe and 10.0% for Asia ex-Japan.

“And that is not factoring in a possible depreciation of the yen, which leaves some room for upward revisions,” Sugio added.

Meanwhile, Invesco’s Japanese experts project a V-shaped recovery for the Japanese economy, with growth expectations at 2% or more for the year.

“While a strong capital expenditure boom looks likely as the delayed equipment replacement cycle kicks in, the Bank of Japan’s expansive monetary policy provides reason to hope that the yen will continue to depreciate. More than anything, growth will be driven by four huge supplementary budgets that will see investments corresponding to about 4% of Japanese GDP aimed at rebuilding damaged infrastructures, supporting people affected by the earthquake and promoting new economic initiatives,” he said.

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