Japanese stocks are far from ugly – here’s how to buy in

When people look at Japanese stocks, all they see is ugliness. But investors are currently enjoying record dividend payouts. Merryn Somerset Webb picks one of the best ways to buy in.

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Investors in Japanese stocks are getting record dividend payouts

Here's something interesting an article in the FT that is supportive of the Japanese stockmarket but that isn't written by me. Leo Lewis is looking at Japan and seeing some good stuff.

There are record dividend payouts and there is a guaranteed buyer (the Government Pension Investment Fund and the central bank are huge buyers). There's a big new buyer in town too with the introduction of negative interest rates, buybacks are suddenly running at levels well above any previous year (this by the way was exactly the mechanism by which very low rates in the US have given us equity bubbles). Add up the total these three players will buy this year, says Lewis, and you come out at around 23bn.

There is also rising evidence that Abenomics is not dead (or at least, says Jonathan Allum in his Blah newsletter, that it is refusing to lie down). Most recent data has been full of pleasant surprises. So why then are foreign investors selling? Lewis says they have sold around 10trn of Japanese stocks in the last 12 months alone.

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It seems that "all they can see is ugliness". That makes some sense there is uncertainty around zero interest rate policy and around the huge intervention into the markets by public bodies. But in the end, stock prices come down to two things price and the flow of money. Japan is not expensive (down 15% in the last year) and certainly not relative to the likes of the S&P500.

Our old friend Hugh Hendry of Eclectica is with Lewis on this. He is buying. People have been predicting that the currency would collapse for years, he told Citywire Wealth Manager. But it hasn't happened. Nor has the long-forecast collapse of the bond bubble. What's more, reckons Hendry, it isn't going to happen something that gives Japan pretty much free rein to keep on printing money and buying assets in its bid to create some kind of inflation. All good for equities.

How should you get in? We've looked at lots of different funds in the magazine over the years, but at the moment I am particularly interested in one of the things mentioned above record payouts to shareholders and hence in the launch of various new funds around this theme.

One of the newest is the Baillie Gifford Japanese Income Growth Fund. Its starting portfolio yields 2.5% (very good for Japan) and if you get in in the next three months you will pay a management fee of 0.25% for the next 12 months (after that it goes up to a still reasonable 0.65%). Baillie Gifford has an excellent record in Japan (I sit on the board of the Shin Nippon investment trust which has delegated its fund management to them) and that, I think, makes this new fund worth a look particularly at this price.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.