Japan charms European investors despite growth fears; “Japan remains an under-analysed and under-appreciated market, with a lot more improvement going on in governance, capital efficiency and shareholder returns than most casual investo r

June 1, 2014 6:18 am

Japan charms European investors despite growth fears

By Madison Marriage

Enthusiasm for Japan-focused funds in Europe has not abated, despite fears that Prime Minister Shinzo Abe’s economic reforms have begun to run out of steam.

European investors placed €3.1bn in Japan-focused funds in the first three months of the year, according to figures from Cerulli Associates, the research firm.

This followed a bumper year for Japan fund managers in 2013, during which European investors allocated €13.6bn to the asset class – a sharp reversal on the €2.1bn of outflows suffered in 2012.

The continued flow of money into Japan-focused strategies from Europe comes in spite of concern that Mr Abe’s economic policies have not gone far enough, with the Tokyo Stock Exchange down nearly 10 per cent year to date.

The so-called Abenomics, which initially focused on fiscal stimulus and monetary easing, prompted powerful gains of 59 per cent in the Nikkei 225 last year. Further announcements on structural reforms are expected this summer.

Torgeir Hoien, portfolio manager of Skagen Tellus, a global bond fund, pointed out that the purchasing managers’ indices for Japanese manufacturing and services crashed in April.

“This might be a sign that Abenomics is running out of steam,” said Mr Hoien, who currently has zero Japanese exposure in his portfolio versus 30 per cent for the benchmark.

Valentijn van Nieuwenhuijzen, head of the multi-asset boutique at ING Investment Management, also voiced doubts about Japan’s potential for further growth.

He said: “Labour market participation and flexibility need to be addressed and domestic product markets need to be liberalised. On this front Abe has talked the talk, but not yet walked the walk.

“He still has to deliver on structural reform, and the details of his actions will determine if the Japanese equity market can move into a multiple-year bull-market.”

However, Cerulli believes that there is scope for European investors to increase allocations to the asset class even more, given that they have just €61bn invested in Japan funds. US investors, by contrast, have €587bn invested in the asset class.

“[Asset managers] may want to make a stronger case in selling Japan’s potential,” the research firm said.

Other fund managers are more optimistic about Japan’s growth prospects.

Howard Smith, head of Japan research at Indus Capital Advisors, said: “Japan remains an under-analysed and under-appreciated market, with a lot more improvement going on in governance, capital efficiency and shareholder returns than most casual investors realise.”

Ben Williams, the investment director at GAM responsible for the Swiss group’s Japan funds, agreed: “Valuations are cheap, earnings momentum is good and we are seeing a notable change in management attitude, all of which reinforces our belief that things are finally changing in Japan for the better.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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