Japanese stocks still look cheap after Shinzo Abe's resignation
A period of uncertainty after Shinzo Abe's resignation could be a good chance to buy Japanese stocks at a good price.
![© KAZUHIRO NOGI/AFP via Getty Images](https://cdn.mos.cms.futurecdn.net/qF6fEhnkdKcPcNCFcd5WSb-415-80.jpg)
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
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
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).
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
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
-
How working part-time in retirement could boost your pension by £87,000
Easing into retirement by working a few days a week could add thousands to your pension pot. We crunch the figures to see how working part-time can boost your pension po
By Ruth Emery Published
-
Easyjet on track for ‘record summer’ - should you invest in airline stocks?
Easyjet reported headline pre-tax profits of £236 million for the three months to June 30 - up by £33 million on a year ago
By Chris Newlands Published
-
What does a weak yen mean for Japanese stocks?
The Japanese yen has hit its lowest level against the US Dollar since 1986. What does it mean for its stock market?
By Alex Rankine Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published