While the macro factors in Japan such as wage growth, inflation and monetary policy will continue to fluctuate over time, a successful raft of corporate reforms would have a permanent positive effect once implemented.
Should the initial positive signs fizzle out into something more akin the lip service than real, significant change then investors with large weightings could be in trouble.
Japan reforms
Manager of the British Empire Trust Joe Bauernfreund is relatively optimistic about the reforms.
His investment trust invests in global equities excluding the United States therefore he spends significant time examining the prospects of Japanese companies and travels to the country regularly to meet management and see things first hand.
“Actions will speak louder than words but I have gotten the sense Japanese companies are embracing the reforms agenda,” Bauernfreund said. “I think the culture could actually help drive through the change now it has started as Japanese company executives will not want to lose face due to their peers’ share prices outperforming theirs thanks to the implementation of reforms.”
“There is so much Japanese companies can do to improve shareholder returns,” he continued. “Many of them have bloated balance sheets which means they can create value by offloading non-core assets, for example.”
Louise Dudley, co-manager of the Hermes Global Equity Fund sees the popularity of Japanese equities at the moment as a balance between the merits taken in isolation and the relative attractiveness.
“Weightings to Japan are in part a reflection of the lack of growth prospects in other markets but at the same time, Japan is demonstrating dependability in terms of earnings,” she said. “Return on equity numbers continue to be strong and we expect that to be the case going forward.”
