The Analyst: Japan is looking like an interesting bet
Saturday 22 October 2011
I have to cast my mind back to 1987 to recall a sustained period of stock market volatility similar to the spell in recent weeks. Rises and falls of 1 per cent, 2 per cent or 3 per cent a day are seemingly a matter of course, along with a few bigger ones of close to 5 per cent sprinkled in. Hardly a helpful environment for long-term investors already frightened of committing funds to the markets. A possible solution is to drip-feed money into areas you think offer value on the poorer days, though even this can be tricky psychologically.
One region that has virtually become a no-go area for private investors is Japan. It is perfectly understandable. Since the heydays of the 1980s, Japan's stock market has been an exceptionally poor performer, although the considerable strength of the yen, up more than 80 per cent in the past 20 years against sterling, has mitigated the losses experienced by overseas investors. There have been so many false dawns on Japan over the years that investors are rightly sceptical, but a recent meeting with Stephen Harker of GLG Japan CoreAlpha Fund highlighted to me that Japan is now very, very cheap.
Mr Harker believes the market is already incredibly oversold. He notes the Japanese stock market has been the worst performing developed-world stock market in every downturn since 1988 – with the exception of the most recent one. Despite the global credit crisis rumbling on and the challenges created by the tragic tsunami in March, the Topix index is down only 9 per cent since the start of the year in yen terms. Perhaps this resilience means it really has reached rock bottom?
Stephen Harker has had a poor year to date in terms of performance. The real action has been in smaller company stocks with exposure to the BRIC economies, but he believes this cycle is now coming to an end and conditions are set to be more favourable for his fund, which invests in the largest Japanese stocks. Always a great contrarian, Mr Harker disagrees with the consensus view that Japan should benefit from its proximity to China. While bearish on China anyway, he believes China is "eating Japan's lunch", gradually taking market share from Japan's manufacturing sector. He argues an economic downturn in China will actually benefit Japan as it will mean lower commodity (especially copper) prices, which should boost Japanese company profitability.
Among Japanese stocks he be-lieves financials are especially cheap. Having been through a deleveraging process over many years there is little sign of economic distress, and Japanese banks have already been outperforming those in other global markets. Interestingly, retailers are also having a good run with consumer confidence seemingly growing.
This is not to say that Mr Harker is bullish about the global economic outlook. He is not, but he does believe Japan is poised to outperform. It went through its own credit crisis some years ago and most investors have given up on the market having had their fingers burnt, so valuations are exceptionally undemanding. Japan's public debt pile is often cited as a catastrophe waiting to happen, but Mr Harker believes it can be overcome. Japan effectively owes itself money, with the debt principally owned by domestic investors who may, in Mr Harker's view, have to take a haircut on it at some stage.
As usual the yen is the wildcard for overseas investors in Japan. Mr Harker's view is that the yen may weaken slightly, and this will be beneficial to Japanese companies whose exports would become more competitive. It is important to note, however, that many Japanese multinationals gave up on their domestic economy years ago and have operations all round the world. They are truly global businesses not reliant on Japan itself. It is unusual for Mr Harker to suffer underperformance for three quarters in a row and I note another fund manager, Paul Chesson of Invesco Perpetual, has had a similarly difficult time. If you are a contrarian investor, gradually allocating some money into Japan looks like an interesting bet right now, and this fund is a high-quality choice.
M ark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
Compare with the Independent: See how much you could save by switching credit cards. Compare now
easyJet founder Sir Stelios Haji-Ioannou aims to make buying a home easier
Life expectancy calculator will allow people to plan ahead but needs to be handled carefully
Do alternative savings offer happy returns?
How to start your own internet business
The housing market is overheating and it's time to cool off
- 1 Chelsea 1 Sunderland 2: Graceless reaction of Jose Mourinho a sad effort to hide his own flaws
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Unbeliebable: The White House offer 'no comment' to anti-Justin Bieber petition
- 4 Loch Ness Monster found on Apple Maps?
- 5 Shropshire criminals ‘using unmanned drones and infrared cameras to find illegal cannabis farms’ – and then steal from the growers
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Abdullah Deghayes: My son was the martyr of a just cause, says father of British teenager killed in Syria conflict
Ukraine crisis: Helicopter gunships take country closer to all-out war
iJobs Money & Business
Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...
£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...
£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...
£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...
Day In a Page
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds