Mark Dampier: Japan - the land of the rising fund

The Analyst

If ever there was a flavour to the start of this year from investors, it must be emerging markets. I was reminded of this at a recent pension trustees meeting when the trustees suggested that, despite wanting a 3 per cent income, they thought most of the portfolio should be devoted to emerging markets. Eight or nine years ago, when I first suggested emerging markets, they would have run for the door – but now they want to fill their boots after the most glorious run.

I am not saying I think emerging markets are likely suddenly to crash, nor do I think valuations are absurdly expensive, but nor are they unbelievably cheap. I say this because, having come back from a recent visit to Tokyo with Neptune, I was again reminded of how unpopular Japan is, which is not surprising, given its 20-year bear market and more false dawns than I have had dinners.

It is easy not to be a fan of Japan. Her economy looks absolutely dreadful and debt has already reached 200 per cent of GDP, which is seen as a classic point of no return for an economy. Yet, as ever, Japan is a real dichotomy. While it may have big government debt, it also has a huge trade surplus and most of its debt is owned internally and, therefore, I suspect it is not such a problem as many suggest.

The nation's demographics are also appalling. Japan has more than 40,000 centenarians and this figure is rising by 5,000 a year. There are also more deaths than births, so on present trends, the Japanese population will cease to exist by the year 3000! Immigration will not come to the rescue of Japan's economy. The complexity of the language defeats many immigrants. Ageing populations are also not given to change. Indeed, the Japanese culture is very consensual in nature. Entrepreneurialism is frowned upon with many of the country's young unwilling to take risks.

Yet investors are not investing in the Japanese economy, they are investing in stocks. Chris Taylor, who manages the Neptune Japan Opportunities Fund, thinks there is a big opportunity. He believes the opportunity is in the multinationals, and this is where the bulk of his portfolio is. His only two domestic stocks are convenience-store operators.

The big multinationals are gradually becoming more and more detached from Japan and moving manufacturing bases to other regions in South-east Asia. The other point is that Japan has begun to realise that its near-neighbour, China, rather than the US, is becoming the more important region.

Japan is in an ideal position to prosper from South-east Asian trade, and its world-class technology is sought after in these countries too. The only thing that seems to be holding back a re-rating of many of the multinationals is the strength of the yen. Given the economic numbers, you would expect it to have weakened but, like everything else in Japan, nothing is as straightforward as that and the yen seems to defy economic logic.

Mr Taylor believes it is only a matter of time before the yen falls and he has hedged the Neptune fund against that. It is noticeable that on any yen weakness, the Japanese stock market, led by the exporters, does move up. It was also one of the best sectors in January and February and one of the few markets that has not really rebounded like others. Another fund manager said the market was "priced for failure", so perhaps that is the opportunity.

I am not sure Japan is a long-term buy and hold, but it will definitely offer more value than many other markets during the next couple of years. It is historically cheap by its standards and very cheap by world standards. Many of you might quote higher PEs at me, but this is not a particularly reliable valuation level at the moment, given the potential earnings fluctuations. I believe investors should be buying on the poor days in the market – and that is exactly what I am doing myself.

Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. He was a guest of Neptune on a recent visit to Tokyo. For more about the funds included in this column, visit

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style

Olympic diver has made his modelling debut for Adidas

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant Birmingham

    £18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Recruitment Consultant - Soho - IT, Pharma, Public Sector

    £20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

    Sales Executive

    £20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

    Day In a Page

    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week