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JOHCM’s Nash: Japanese sales tax hike will not stall recovery

JOHCM’s Nash: Japanese sales tax hike will not stall recovery

JOHCM Japan manager Ruth Nash says fears a Japanese sales tax hike will put the brakes on recovery are overdone.

While many were concerned a sales tax rise from 5% to 8% in April could dampen consumption, Citywire AA-rated Nash said April data from retailers suggested the situation is not as bad as some had anticipated.

‘We are seeing a slight year-on-year decline but nothing as bad as last time it was increased. It’s a very encouraging sign because if you want to see a recovery in Japan, we have to see domestic demand,’ she said.

She believes a spike in domestic investment is the key to a turnaround for the country.

‘If there is to be a bull market in Japan, there has to be domestic interest, rather than foreign investors who move on to the next story.’

While she acknowledged that taking on too much beta in the fund had hit recent performance, she is bullish on valuations.

Over the year to the end of March, the £607.7 million JO Hambro Japan fund has lost 4.6% compared with a 1.4% fall by the Topix. ‘We have been a bit too bullishly positioned. Year-to-date we have had too much beta. We have no defensives in there at all, which has caused us to underperform,’ Nash said.

However, the fund has delivered 22.1% over the past three years, compared with 14.3% by the Topix. Over the past five years, it has returned 46.9% compared with 42% by the index.

Nash foresees little downside as prime minister Shinzo Abe’s policies, known as Abenomics, seek to drive economic recovery and combat deflation.

‘On a price-to-earnings basis Japan is much cheaper than other developed markets and I have never seen that before,’ she said. ‘If Abe can achieve even a fraction of what he hopes too, I can’t see a downside and we continue to be bullish.’

Nash said the emerging dividend culture in Japan was something she is keen to tap into. JO Hambro recently launched a fund dedicated to the theme, run by Nash and co-manager AA-rated Scott McGlashan.

‘People are quite surprised when you start talking about dividends in Japan but it leads the world in dividend growth,’ the manager said.

However, she added that this expansion was coming from a very low base as a dividend culture develops.

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