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.
Beazley urged similar caution, citing the psychological impact of the earthquake, tsunami and radiation fears on the Japanese. “There is the dark possibility that Japan takes longer [to recover], if it is really reeling.”
But it is also a nation of resilience, both he and ING’s chief strategist Valentijn van Nieuwenhuijzen agreed. If anyone can recover, it’s the Japanese, they say.
Inflation, meanwhile, will benefit financial holdings in portfolios – so think Stephen Harker, Neil Edwards and Jeffrey Atherton, who run GLG’s AAA-rated Japan funds.
While they think most companies will recover quickly by the end of Q3 2011, they say financials offer the best valuations. The sector now represents less than 12% of the index, compared to its 40% peak in April 1987.
Simon Somerville, manager of the Jupiter Japan Income Fund, agrees liquidity injected into the economy by the Bank of Japan will lead to inflation and benefit financial stocks hurt by the deflationary environment.
For that reason, Invesco Perpetual’s Henley, UK-based team consisting of Paul Chesson and Tony Roberts are long on Japanese banks, as is GLG’s Japan fund.
Both managers are so positive on Japan that for the first time ever, Invesco is overweight Japan in its Asia Pacific mandates. The firm is also overweight Japan in its global mandates.
The case? Price-to-earnings ratios of 12 times in Japan, in line with global markets, and expected earnings growth in financial year 2012 due to inventory rebuilding.
News flow from companies is also improving and mainly positive, say Chesson and Roberts.
They also point to Japan’s problem as one of supply chain. In contrast to the global financial crisis when demand fell off following the collapse of Lehman Brothers, the earthquake and subsequent crises create demand through the need to rebuild.
Meanwhile, Hiroyuki Ito, who runs Goldman Sachs’ Japan portfolio, thinks Japan is operating at only 90% capacity and will produce additional output to meet stock replenishment.
The catalyst for better returns will be increased production – therefore, earnings – helped by the Japanese government’s fiscal stimulus package, he says.
Already a Japan bull before, Ito is sticking to his guns, reports S&P fund analyst Guy Boden. Ito is even considering a marketing trip to Europe to make Japan’s investment case.