JAPAN - A surge in investor confidence and a supportive macro backdrop have been tipped as factors which could lead Japanese equities to outperform over the longer term.
The country’s economic recovery has been well publicised, with a good deal of attention paid to the Bank of Japan’s decision to keep interest rates at zero, and its now repealed policy of “quantitative easing”, by which the BOJ flooded the markets with excess reserves every evening.
According to Investec Asset Management, the Japanese government’s hope of creating an autonomous, self-sustaining economy are now materialising.
Philip Whittome, portfolio manager at Investec, commented there were now early signs that institutional investors were diverting more money to equities. He noted a reported 8% increase in their allocation to equities in fiscal 2006 as the end to quantitative easing in Japan hit the bond market.
“While no one knows exactly what will happen over the next couple of months, over the long-term we believe the market should sustain an upward trend,” said Whittome.
Reasons given for Investec’s outlook include the fact GDP growth is now led by the domestic private sector, with a supplementary boost from exports; public expenditure and exports used to be the mainstays of the economy.
Japanese corporate profits have also continued to grow, with full-year net profit growth at 25%, 15% ahead of company forecasts, for the fiscal year to end-March 2006.
Furthermore, Japanese banks are lending again for the first time in many years, as private sector firms regain the confidence to borrow, said Investec.
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