“The global fawn fest over Shinzo Abe’s departure takes the you-do-not-know-what-you-have-until-you-lose-it sentiment to new heights,” says William Pesek in the Nikkei Asian Review. If we take “brutally honest stock of all that Abe failed to do with his 2,800-plus days in power”, we see that just one of the three much-touted “arrows” that made up “Abenomics” was fired successfully. The Bank of Japan’s aggressive monetary policies helped deliver “the longest expansion since the 1980s” – although this failed to kick off “virtuous cycles of rising wages and consumption”. But the promise of pro-growth fiscal policies “fell to earth”, while that of massive deregulation “never got deployed”.
That may be too harsh, reckons Ma Tieying of investment bank DBS. True, annual GDP growth of 1% under Abe was only modestly higher than the 0.8% seen from 2000 to 2012. However, the “long period of political stability” (Abe became Japan’s longest continuously serving prime minister shortly before he resigned last week) at least “paved the way … to carry out some modest economic reforms”.
The concern for investors now is not whether the monetary and fiscal stimulus policies that the Abe administration has been following will change: “even without the Covid-19 pandemic, the authorities would not withdraw [these] anytime soon”. Rather, it’s whether Japan could “slip back into political paralysis or instability” with a return to the rapid turnover of short-lived leaders that preceded Abe. If so, this would present “challenges to push for further reforms to reinvigorate the economy”.
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
Better governance and higher profits
Still, from an investor’s perspective, a lot of important work has been done – hence many analysts think that a period of uncertainty would be a good chance to buy, says Leslie Norton in Barron’s. Abe’s attempts to overhaul the economy “remained unfinished”, but efforts to improve corporate governance have made a difference. More than 90% of listed firms have more than one independent director, compared with 20% in 2014. And cross-shareholdings between companies are now under 10% of market capitalisation, down from 30% plus in the 1990s.
Meanwhile, “little noticed even by professional investors, Japan’s earnings-per-share growth has quietly beaten most global markets in dollar terms since Abe took office”, says Mike Bird in The Wall Street Journal. Corporate profit margins, which used to range between 2% and 4%, haven’t dipped below 5% in the past five years, “suggesting a secular break in profitability”. Yet the market still looks “comparatively cheap” alongside global peers, even taking into account the shortage of “mega-cap tech companies” and the excess of “chronically troubled financial firms” among Japanese stocks.
Add on companies’ habit of stockpiling cash, which helps them avoid dividend cuts or keep investing for growth in a crisis like this, and the bull case is clear, says Richard Evans in The Daily Telegraph. Consider buying the Baillie Gifford Japan Trust (LSE: BGFD): “it is, unusually, trading at a discount” to the value of its assets.
-
UK inflation live: are prices rising?Following January's surprisingly high Consumer Prices Index reading, what has happened to UK inflation in the year to February? Live preview and analysis from the MoneyWeek team
-
Digital Services Tax: will Reeves let big tech off lightly to avoid tariffs?Rumours are circulating that the Digital Services Tax on big tech companies could be cut as Rachel Reeves seeks to appeal to president Trump
-
Weight-loss drugs could revolutionise the economy – the investments to buy nowThe new generation of weight-loss drugs are a boon for the overweight, but they also promise to change our relationship with food and revolutionise the economy
-
Find tomorrow’s Asian giants while they are still smaller companiesOpinion Nitin Bajaj, portfolio manager of the Fidelity Asian Values trust, picks three Asian companies to invest in.
-
AI will maintain Moody’s market lead, says Stephen ConnollyOpinion Veteran data provider Moody's has adapted well to the modern world, and is one of Warren Buffett’s longest-held investments
-
Is BlackRock World Mining gearing for a recovery?Opinion After a frustrating year, BlackRock World Mining is positioned for growth and to capitalise on the sector's recovery
-
Should you limit exposure to US tech stocks?An end to the AI boom would shake both US funds and global trackers. Here’s one way to trim exposure to US tech stocks
-
The mystery of America’s gold and why an audit mattersHow much gold does the US actually have? Dominic Frisby explains why it matters
-
Art vs AI: artists’ uprising takes on the botsAI performs impressively, but it’s all based on human work that was taken without payment. The government thinks this is fine. Copyright holders beg to differ
-
The benefits of a stock bubbleOpinion We tend to think of stock bubbles as bad things but, as the dotcom craze shows, good things can come from them, says Matthew Lynn
