GP speaks to global asset managers about where they see opportunities arising from the recovery
Chris Panteli: It has been only a few months since the country was hit by a devastating earthquake, tsunami and subsequent nuclear crisis. In addition to the huge loss of human life, the disaster had a massive effect on Japan’s economy. The Nikkei plunged and manufacturing in areas affected ground to a halt. The Government has put the cost of reconstruction as somewhere between ¥16 to ¥25trn.
But Japan is no stranger to disasters and rebuilding and the signs of recovery are already beginning to show.
Peter, how do you think the Government has handled the situation following the disaster?
Peter Jenkins: Obviously it’s an extremely difficult time and a huge tragedy. But having said that, there are clearly flaws in the way the Japanese Government has handled it, particularly in terms of the overall flow of information. I don’t think the Japanese Government has been quite as forthcoming and as timely with information flow and basically keeping the public, the media and everyone else up to speed.
In terms of how that impacts on the effectiveness of Japanese equities overall, clearly we will look for the Government to be decisive at this point. However, it is no great surprise in terms of the history of the way that the Government has dealt with previous crises that it is not being as decisive as we would like. I don’t think it changes hugely the outlook for the attractiveness of the equity market overall.
Chris Panteli: Andrew, how have you see the valuations change over the two months since the disaster?
Andrew Rose: Well I thought valuations were cheap before the earthquake. And I still think that now. In fact valuations have been cheap for a long time in Japan, and it won’t be an earth-shattering piece of information on this discussion that Japanese equities are cheap.
The issue we have at the moment though is the visibility of profits is extremely poor, given the earthquake and given the weak short-term economic outlook. So it’s hard to look at the short-term price to earnings ratio and say the market’s cheap. But if you look at measures such as price to book, or cyclically adjusted price/earnings ratio, the market is cheap versus its own history and versus other markets. So I think there’s a lot of uncertainty after the earthquake but one thing that is clear, it is a valuation crash, not the market.
Chris Panteli: Colin, have managers been quick in reacting to the crisis?
Colin Robertson: I don’t think managers have done very much at all. They regard it very much as a short-term impact on profits and they’ve looked very much to the longer term.
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