A number of factors are leading to an increased appeal in the Japanese market, a shift that may be getting overlooked by larger managers, one boutique has claimed.
The chief executive of $4.6 billion Melbourne-based Bell Asset Management, Ned Bell, said he has been covering Japan for around 17 years and while turnarounds have been called before, the latest turnaround may be genuine.
“We’ve been very underweight Japanese equities since day dot [the fund’s 1997 inception],” he said. “We’ve picked up a lot of alpha by being underweight Japan in the last four or five years.”
He said that changed in August last year when he visited the country – before the recent rally and change of government, with Shinzo Abe winning the election.
“I came away thinking, from a valuation point of view, [Japanese equities were] looking very inexpensive, so we ended up adding about five per cent of our portfolio to Japanese equities in August of last year, before the rally. It’s done very well,” he said.
He said the allocation has been outperforming the rest of Bell’s global portfolio since then, and the manager has continued to add to the allocation.
The new government is very actively trying to stimulate the economy and reverse its lagging export sector, mandating that the country’s pension funds put more into equities.
“I think they are the real deal and I think it’s going to work this time,” he said.
He said the Japanese economy has only grown at more than 2.5 per cent once in the last 20 years, but is tipped to grow by around 2.6 or 2.7 per cent in the current Mach 2014 financial year.
“The reality is that a lot of the global investors who are very low Japanese equities, they just don’t buy it. The old heads have called the Japanese turnaround eight times in 20 years and it never happens,” he said.
“That scenario is simply not factored into earnings estimates this year, so there’s quite a lot of upside and the benefit of the weakening Yen will be huge for the export industry.”
