Japan: What's The Plan, Buddy?
Since early February the unfolding political scandal over the Morimoto Endowment has engulfed the Abe government and focused the attention of commentators. That it has coincided with equity market volatility in the United States and elsewhere has resulted in Japanese equities underperforming, especially in yen terms.We view this as a buying opportunity. Mr Abe's political woes, even if they turn out to be more severe than looks likely at present, will not affect the positive economic cycle that has produced corporate Japan's strongest ever profit performance. The cyclical global upswing, Olympic Games spending and over-full employment at home are combining to produce the strongest growth performance in decades. One of the few successes of Mr Abe's Third Arrow - structural reform - has been improved corporate governance and, with profits booming, this is translating into increased dividend payouts for shareholders. In our view 2018 and 2019 should be equally good years. We are happily overweight Japanese equities.
And we would recommend that investors be overweight Japanese equities in an unhedged portfolio. The political atmosphere globally has changed and tolerance for currency wars (or, more accurately, beggar-thy-neighbour policies) is low, especially in the US. Add to that the external surplus being generated by Japan and the fact that money growth differentials are adding to the scarcity value of the yen and there is every reason to believe that the currency, despite the negative interest rate differential, is headed higher.
In the attached report, Japan: What's The Plan, Buddy?, we explain why investors have nothing to fear from Morimoto or the stronger yen, how corporate profits will underpin even stronger growth this year and why the global cycle is not going away any time soon. There is lots to be positive about in Japan at the moment: Get Long.
Best for now
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
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