60 seconds on the most predictable element of investing in Japan
Andrew Rose explains why the geopolitical backdrop should not distract investors from positive company-level changes in Japan.
1 June 2017
Influence of geopolitics
Japan has been subject to a number of macro influences over the past 12 to 18 months. First of all, there were negative interest rates; then there was Brexit; following that, you had the arrival of Donald Trump as US president; and latterly, you’ve had the issues on the Korean peninsula.
Negative interest rates have had an impact on financial share prices. Brexit had no particular direct impact in Japan but it led to risk-off sentiment generally. Donald Trump has been both a positive and a negative: positive in the sense that he has been good for the prospects of global growth, and negative in relation to protectionism. Of course the Korean issue is one that will be ongoing for Japan.
Positive news at company level
So, while these macro influences are not going to go away, what is of some comfort for the Japanese equity fund manager is that there is a lot happening at the company level. For example, although company profit forecasts are conservative, it is likely that they’ll go up this year. On the basis of that, valuations look pretty compelling in a relative sense.
In addition to that, you’ve got changes in corporate governance which are positive for shareholders and should boost return on equity (ROE). So you can’t ignore the macro but I think what’s happening at the company level is more interesting and also more predictable.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.