Managers stay invested in Japan despite catastrophes

Many managers have held on to their Japanese equities and remain optimistic on the country’s long-term outlook. But they diverge on the opportunities ahead and when those will surface.

Three months after Japan was shaken by a devastating earthquake and tsunami, as well as subsequent nuclear scares, fund managers have asked themselves whether reconstruction efforts mean 2011 will be its year.

Of 23 managers interviewed by Standard & Poor’s Fund Services over April and May, 21 of them believe Japan remains an attractive investment opportunity.

Just two were sceptical about the country’s ability to offer investors good returns in future.

The research echoes findings by InvestmentEurope in April, when 60% of respondents to an online poll thought the impact of Japan’s earthquake, tsunami and its nuclear crisis would hit investors only over the short term.

The poll also found that 17% of respondents felt there will be a long-term hit to returns and 23% expected there to be both a long- and short-term effect.

Charles Beazley, Nikko Asset Management’s head of international and institutional business, based in Tokyo, said those results reflected “what we sense is the case in the marketplace here as well”.

Like many of the fund managers that S&P surveyed, he believed opportunities will arise out of the restructuring and rebuilding process.

Some of the more bullish managers S&P heard from include Kenichi Kubo, manager of the A-rated Tokio Marine Japan Equity Leaders Fund.

He thinks the ­earthquake and subsequent disasters have knocked Japan’s economy for just six months to a year.

Looking ahead, Kubo says that for the first time in 20 years, Japanese companies are undervalued on a price-to-earnings basis.

Previously, Japan has been overvalued relative to other markets, he argues. Companies now are on less multiples than Europe, the US and emerging ­markets, he says.

Kubo also thinks that along with global recovery, ­Japanese stocks will recover.

Sharing the view of other managers, he says ­deflationary Japan is also set to ­benefit from rising ­inflation imported from China. But the ­Japanese must spend, he warns.

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