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Schroders' Rose: expect further Japan gains in 2014

by Matthew Goodburn on Dec 18, 2013 at 11:47

With Japan currently having to import all of its energy requirements after the shutdown of the nuclear programme following the Fukushima disaster, Rose says if the yen weakened further, it would put extra strain on the domestic economy.

'It is all very well for exporters having a weaker yen but if the demand for products is weak it won't help that much. Even if it does weaken further I think the positive benefits of that will be much less from here.'

Rose predicts that pressure from the rising cost of importing fuel will eventually lead to the country starting to switch some of its newer nuclear reactors back on.

'Nuclear power contributed 30% of Japan's total energy output before Fukushima and my expectation is that eventually half of that capacity will come back on stream. That process will start soon, but it could take a number of years.'

Rose thinks Japanese equities are still 'not expensive' after rallying from a low base and he tips domestic demand for risk assets to sustain market returns over the medium term.

'In terms of corporates, the profit picture remains strong and I expect domestic investors to be more constructive going forward.

Rose's optimism is based around the recent creation of a Japanese individual savings account, the NISA, which will see investors invest up to 1 million yen, or $10,000 annually into stocks and shares.

'Personal investors still have 55% of their assets in bank deposits and just 10% in equities. This has been the right call over the last 15 years due to deflation, but if people start to believe that Abenomics will be successful and 2% inflation can be achieved, they will start to make the asset allocation move into risk assets.' 

Over the three years to the end of November, Rose has returned 65.1% versus the average Equity - Japan manager return of 57.1%.

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