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Expect a Q2 slump in Japan before a second half rebound
by Helen Harjak on May 28, 2014 at 15:01
Elsewhere, Japan bull Tom Becket, chief investment officer of Psigma Investment Management, noted various increasingly consensus views on the country: that Abenomics had failed, shares were expensive after last year's fireworks and the consumption tax rise was 1997 all over again.
In response, he said: ‘The changes in Japan over the last eighteen months have been (in Japanese terms) extraordinary and far-reaching. Abenomics is working and structural reform is taking place.
‘Japanese equities are as cheap as they ever have been against US equities and also cheap in a global context. Meanwhile, issues around the consumption tax rise in 1997 were hugely amplified by domestic issues (the banks were bust) and exogenous factors. The Japanese economy is now strong enough to withstand the rise and this is borne out by anecdotal evidence from the likes of Fast Retailing, the Japanese retailer.’
Becket also highlighted several important developments in Japan over recent years, including the creation of a new equity index focusing on return on equity (ROE), the introduction of Japanese ISAs and growth in corporate profits of over 70%.
‘The market has gone up a long way, but so have earnings, contrary to the experience of many other global equity markets (such as the US) that are so en vogue,’ he added.
‘Japanese equities are now outstandingly cheap. The recent falls have offered investors who missed the boat last year the chance to benefit from this great growth opportunity and we are increasing our Japanese overweight.’
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