McGlashan stands by Japan bull market call

JO Hambro Capital Management's veteran Japan manager Scott McGlashan is standing by the claim he made last year that Japan is entering a multi year bull market. Once the dust of the credit crisis settles, he believes, the Japan bull market will begin in earnest.

The highly-respected manager of the JOHCM Japan Retail fund told Citywire in November that he expected 30% returns from Japanese equities in the coming year, citing rising dividends and a growing mergers and acquisitions culture as the catalysts for such a turnaround.

Since he made that call eight months ago, however, the Topix index has fallen a further 17.6% in yen terms while his fund has lost 14.5%. But that has not changed his bullish stance.

'Perhaps I got the timescale wrong , but I think the market is 50% undervalued now, if not more,' McGlashan (pictured below) says. 'I would still be very aggressive about the Japanese market, but it is difficult to put a finger on when the current global volatility will calm down.'

He thinks the arguments he made for Japan in November still hold true, with dividends very attractive and companies having healthy balance sheets and strong cashflows.

'I come in every day expecting the market to be rallying,' he says. He thinks the market has suffered from international investors being net sellers of Japanese markets, although he is encouraged to see domestic pension funds and insurance companies buying back into equities on a large scale.

He also thinks Japanese firms are erring on the side of caution in their forecasts, unlike some of their western counterparts.

'Marks and Spencers recently predicted a 5% drop in sales, whereas in Japan I recently visited a major department store where they made out that no-one in Japan is ever going to go shopping ever again.'

Another leading Japan manager, SGAM's Stephen Harker, also recently spoke of his bullishness on the country. He described Japan as having become 'banker to the world.' McGlashan disagrees with this description, but thinks they could be in predatory mood.

'Japan's banks lost so much money in the 1990s that they have become very cautious about their lending. I do not think they have the confidence in their own ability to become lenders to the world,' he said. 'But they could become very predatorial in the global scene.'

For his own portfolio McGlashan is currently not particularly positive about the banking sector and is awaiting the release of latest figures in the coming weeks. He thinks these figures will reveal the domestic banking sector is going into decline, 'but not falling into an abyss.' However, he expects to see banks picking up their M&A activity.