Rebuilding trust - time to look back at Japan?

Over the last decade, returns from the Japanese equity market have not been great. This come to no surprise as the country faced negative perception when it comes to investments.

First of all, the equity market was at a very high valuation back in the 1990s. Secondly, the banking system was riddled with bad debts and lastly, the population of Japan is ageing and has been in decline since early 2000. By 2050, nearly 40% of Japanese will be older than 65!

Combined, these factors have all formed a vicious headwind for the market.

Why investing in Japan looks attractive in 2019?

Although Japan has been battered by all this negative perception, there are several reasons why Japan can be an attractive investment prospect for 2019.

1. At the moment, Japanese equity market valuations are amongst the cheapest in developed equity markets.
2. Japan’s poor demographic profile has spurred innovative ways of tackling the relative shortage of workers. As an example, the country is now a world leader in automation and robotization.
3.  Although the population is shrinking, GDP per capita of growth of 7.5% is almost exactly the same as in the US over the last 10 years – and significantly more than the UK’s 4.9%.
4. Japan is well exposed to the growth of China, which it is expected to remain robust in 2019.
5. Japan’s bank balance sheets are now in solid shape and able to lend to Japanese entities. This came about after Prime Minister Abe’s economic reform which includes high government spending, limitless quantitative easing and corporate reform.

To conclude..

When looking at all these improvements over the past decade, I think that Japan offers an attractive story. Adding to this, the further progress on a shareholder-friendly corporate reform plus enthusiasm generated by the 2020 Tokyo Olympics, Japan provides a very interesting investment case.

 

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