Shinzo Abe’s resignation could be buying opportunity for investors in Japan

Japan’s prime minister, Shinzo Abe, has resigned, driving stockmarkets down. If the market sells off properly, says Merryn Somerset Webb, it could be time to go shopping.

Japan’s longest ever serving prime minister, Shinzo Abe, has resigned on health grounds. We’ve written about Abe and his three arrow reforms – bold fiscal policy , expansionary monetary policy and structural reform – many times over the years. It hasn’t worked out perfectly (what does?) but his leadership has seen Japan make real progress (in the structural reform bit at least).

It is hard to imagine these policies being enthusiastically reversed – particularly given that Abe’s successor will almost definitely come from the ruling LDP party. Very easy monetary policy and massive fiscal stimulus is now the global norm. That Japan was first into it is hardly evidence it will be the first to have a go at finding its way out (not everyone agrees by the way

We would expect fiscal and monetary policy to stay pretty aggressive (the budget deficit may be obscene but the Bank of Japan will be keeping interest rates very low) and for all the attempts to improve corporate governance and so on to continue. Expect tweaks, but not much more. 

In the shorter term, Japan looks like it will have a reasonably strong third quarter – daily Covid cases are falling; restrictions are being relaxed; mobility is back up with online routing requests back at pre-pandemic levels  (thanks in part to the domestic tourism “Go to Travel” campaign); and the government has announced that over 98% of households have received their ¥100,000 (£700) cash handout. Hopefully they will get out and spend it – retail spending rose 13% in June and new car registrations were up 20% in July, notes Capital Economics, so they are clearly in mood. 

Industrial production also looks to be coming back nicely – Capital Economics has pencilled in a 5% rise in production in July and 6.5% fall in GDP over the full year (not bad under the circumstances), but given Japan’s strong corporate balance sheets, good virus control and lack of dependence on overseas tourism that might be pessimistic. 

If the change at the top – and the scramble to replace Abe – means the market sells off properly (equities were down 1.6% at their worst today), I’ll be buying more Japan in my Sipp. Few markets are cheap in absolute terms at the moment but Japan remains relatively inexpensive on most measures (cyclically adjusted P/E ratio and dividend yield in particular) and offers the now unusual prospect of long term rises in the dividend payout ratios. A key number to remember is that in July this year 56% of Japan listed companies had net cash. Only 16% of those in the S&P 500 did. In this environment, most other things being equal, which would you rather hold

Value investors looking at Japan, try the AVI Japan Opportunity Trust (LSE: AJOT). Growth-orientated investors might look at Baillie Gifford’s Japan Trust (LSE: BGFD).

Recommended

I wish I knew what contagion was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what contagion was, but I’m too embarrassed to ask

Most of us probably know what “contagion” is in a biological sense. But it also crops up in financial markets. Here's what it means.
21 Sep 2021
Why is the UK short of CO2 and what does it mean for you?
UK Economy

Why is the UK short of CO2 and what does it mean for you?

The UK is experiencing a carbon dioxide shortage that could lead to empty shelves in supermarkets. Saloni Sardana explains what’s going on and how it …
21 Sep 2021
What to invest in to beat soaring energy prices
Investment strategy

What to invest in to beat soaring energy prices

As gas and electricity prices hit the roof, John Stepek explains how to invest to offset higher energy bills.
21 Sep 2021
Are Spacs just for suckers?
Investment strategy

Are Spacs just for suckers?

This year has seen a big boom in activity by special purpose acquisition companies (Spacs) in the US and the Spac craze is spreading to other markets…
21 Sep 2021

Most Popular

The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021
Two shipping funds to buy for steady income
Investment trusts

Two shipping funds to buy for steady income

Returns from owning ships are volatile, but these two investment trusts are trying to make the sector less risky.
7 Sep 2021
Should investors be worried about stagflation?
US Economy

Should investors be worried about stagflation?

The latest US employment data has raised the ugly spectre of “stagflation” – weak growth and high inflation. John Stepek looks at what’s going on and …
6 Sep 2021