Not invested in Japan yet? Now looks a good opportunity
Shinzo Abe’s time as Japan’s prime minister has been good for investors. With his re-election as party leader, John Stepek sees no reason for that to change.
Elections are a nail-biting event for any incumbent leader these days, regardless of how secure their majority appears to be, or how predictable the result.
So Shinzo Abe, Japan's prime minister, could have been forgiven for feeling a bit edgy ahead of his party's leadership election last week.
He needn't have worried; he won comfortably. That means Abe will be in charge now until at least 2021, which would make him Japan's longest-serving prime minister.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
And that's good news for investors.
Abe's reign has been good news for investors
When Abe first came (back) to power in 2012, he embarked on an ambitious set of reforms known as Abenomics. The central bank printed unprecedented sums of money and Abe made efforts (a bit later in the process) to free up the labour market, getting more women and older people into the workplace.
As Peter Tasker puts it in the Financial Times, "It worked".
An incredibly low unemployment rate and a very high employment rate (ie, a very large proportion of those aged 15-74 are in jobs) means that wages are finally rising at a rate above inflation. Corporate profits are high, and investment is "booming" (because with wages rising, suddenly it makes a lot of sense for companies to spend money on automation).
As Tasker notes, you can't necessarily pin all this on Abe's work, but certainly the money printing and the psychological shift that it drove has helped a lot. So the continuity of that process is good news for investors.
What's also interesting from an investment point of view is that Abe is now positioning Japan as the lead "green" economy in the world. In an opinion piece in yesterday's FT, he said that world leaders needed to get together to sort out climate change, he noted: "Japan has goals such as creating ultra-high-capacity storage batteries, further decentralising and digitising automated energy control systems, and evolving into a hydrogen-based energy society."
This is encouraging for two reasons. First, these are all exciting areas of investment right now. At some point, we're going to see a proper bubble in "green" technology (we've seen small ones inflate across various individual sectors, but nothing that could be described as an epic bubble). If Japan is at the forefront of it, I want some of my money to be there too.
Secondly, it suggests that the Japanese government's focus on evolving a more shareholder-friendly society will continue. Abe is more than happy enough to use the Japanese government pension fund (a massive investor) to put pressure on companies to improve their record on "environment, social and governance" issues, one of which is being more open to listening to shareholders.
One reason many Japanese stocks trade at a discount to their assets is because of this history of intransigence when it comes to unlocking value or treating shareholders like owners rather than inconvenient hangers-on.
Can Japan throw off the "iron coffin lid" for good?
Finally, timing-wise, this looks a good time to invest. Technical analysis is a topic which inspires a wide range of views. If you think it's rubbish, feel free to ignore this point. But the Topic index Japan's equivalent of the S&P 500 (the Nikkei is more like the Dow) has just risen above a particularly potent "line of resistance" once again.
Put simply, a line of resistance is a point at which a market has consistently struggled to rise above, mainly because there are a lot of sellers waiting to dump their holdings at that level. One particular level has kept the Topix index suppressed for many many years now.
Here's a chart I prepared earlier (and if you're interested in charting, you can read the accompanying piece here). You can see that the Topix has often bumped its head on the 1,800 level what Jonathan Allum of SMBC Nikko describes as the "iron coffin lid":
That chart runs up to late 2017. The Topix did manage to burst through, and by the start of 2018 had managed to claw its way above 1,900.
However, as you can see in the chart below, then the correction came. By the end of March, the Topix was back down below 1,700. However, it didn't fall far. It made its way back above 1,800 in May again, then listlessly drifted back down below 1,700 by July.
But now the Topix has just pushed through "the iron coffin lid" again. It's raced back above 1,800 in the last week or so.
What's my point? It looks to me as though Japan is genuinely throwing off the last few decades and is finally ready to make a concerted push higher.
We've been recommending Japan for a long time and I suspect that many of you are already invested there. If you're not, then I'd suggest you invest using one of the several high-quality London-listed investment trusts that focus on Japan. Merryn took a look at one very interesting looking new option in the most recent issue of MoneyWeek.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
How to invest in nuclear power
We need nuclear power to go green, says Dominic Frisby. But there is a better option than huge power stations
By Dominic Frisby Published
-
Chase slashes its easy-access savings rate – is it time to switch?
The Chase easy-access savings account has proved popular with savers thanks to its competitive rate and bonus deals. But, as the rate has dropped, has it lost its charm?
By Katie Williams Published