Trustnet Magazine Issue 13 December 2015 | Page 16

INVESTMENT STRATEGY

DIFFERENT THIS TIME?
Adam Lewis finds out why Japan’s strong performance this year isn’t
just another in a long line of false dawns

N

ever has one country
polarised investor opinion
as much as Japan. One false
dawn has followed another as it
sat in the depths of a demographic
quagmire for years, becoming the
first of the developed nations to see
its generation of baby boomers hit
retirement.
What has followed is years of a
country stuck in deflation, with
some analysts holding up Japan as
an example of what will happen
in the western world in the next
decade as our own baby boomers
start taking their pensions and
stop contributing to the economy.
However, as Apollo Multi
Asset Management’s Ryan
Hughes notes, economics and
corporate fundamentals are two

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very different things. Too often
investors get hung up on what
is taking place in the economy
and miss opportunities that may
be presenting themselves at the
stock market level.
In 2015, Japan has led the way
in developed stock markets. Yearto-date, the Nikkei 225 index is
up 14.51 per cent compared with
0.4 per cent from the FTSE 100,
6.56 per cent from the S&P 500
and 3.71 per cent from the MSCI
Europe index.
This has translated into decent
returns for funds sitting in the
IA Japan sector. None of them
have registered a loss over one,
three or five years to the start of
December, with the sector up
13.62 per cent, 52.34 per cent

and 42.43 per cent over these
respective time periods.
“For too long, investors have
focused on Japan’s economics
and have been blinded by lots
of terrible data,” said Hughes.
“This has forced many of them to
become Japan cynics, of which I
have been one at times.”
“[Shinzo] Abe changed the
narrative when he became prime
minister and the economic
reforms he put into place should
lead to corporate reform, of which
the first seeds are now starting to
bloom.”
In 2015 a number of companies
have been delivering strong
earnings upgrades and Hughes
says there remains huge potential
to deliver more.
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