Swiss & Global lauds Japanese corporate recovery of past year

Ernst Glanzmann, fund manager of the JB Japan Stock Fund at Swiss & Global Asset Management, finds that some Japanese companies are more profitable than before natural catastrophe one year ago.

It is remarkable how fast Japanese companies have recovered from the extraordinary events in March 2011, underlining their high flexibility and dynamics.

The Fukushima disaster led to an overall economic loss of more than $200bn, making it the costliest natural catastrophe on record. Nevertheless, in a very short time, most companies were able to recover production and corporate profits have largely returned to pre-earthquake levels. Some internationally-geared companies are reporting their best earnings ever. Going forward, favourable raw material costs and the fairly neutral yen should make a positive contribution to input costs and help companies to expand margins and profits.

Another noteworthy development is the increasing number of corporate actions. Share buybacks almost doubled last year and dividend payouts remained the same despite declining profits. Excess cash is increasingly distributed to shareholders. These are very supportive moves for stocks.

Q2 results will bring more visibility

Japan has seen a sharp reduction in valuations, reaching historic lows only a few weeks ago. Besides the Fukushima calamity, this reflected investors’ concerns about the impact of the European debt crisis and economic slowdown in China. Economic data and the sovereign debt developments in Europe no longer support such a pessimistic stance. Earnings have been temporarily distorted and come summer, the “dust” will have settled and a more reliable base to forecast profits will become visible. Investors are now more willing to appreciate the efficiency gains which many companies in Japan have worked hard to achieve over the last 12 months.

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