Japanese Assets: To Buy, Or Not To Buy?

Standard Life Investments suggests that there are tactical arguments in favour of Japanese assets, especially equities and real estate, but a strategic call depends on the Japanese Government adopting further structural reform.

The latest edition of Global Perspective looks at a key question facing investors, whether to buy or sell Japanese equities, government bonds and real estate. The monthly publication summarises a recent round table discussion on the pros and cons of investing in Japan, involving Standard Life Investments and its strategic partner, Sumitomo Mitsui Trust Bank.

Andrew Milligan, Head of Global Strategy, Standard Life Investments said:

"Cyclical arguments and structural triggers are currently informing investors’ thinking as they re-examine the case for investing in Japan. Policy announcements after the election of a new government in December sparked major shifts in the Topix and the yen, both moving over 20% within a few months. Many investors have hurriedly moved from Light to Neutral in their allocations to Japanese equities and are debating the approach to real estate and bonds.

"We would still caution with ‘caveat emptor’. Japan has seen a long series of attempts to turn the economy around. Historically is has been right to doubt just how sustained any Japanese policy initiatives will prove to be. The present occasion is not yet any different, it is a tactical call to prefer some Japanese assets but the strategic decision is still to be taken. If change is lacking, then investors should look to ‘rent’ Japanese equities for a short period, rather than ‘owning’ them for the longer term."

Shigeru Oshita, Chief Portfolio Manager Japanese Equities, Sumitomo Mitsui Trust Bank, said: "We should look at how seriously the country deals with reforms. It is too early to come to a firm conclusion at this stage. Too many people still assume that it is not different this time. No change is not an option. I am confident that economic growth, and the stock market, will be better in the long term."

Taking part in the round table were Shigeru Oshita, chief portfolio manager Japanese equities, Sumitomo Mitsui Trust Bank, Jack Kelly, investment director, global government bonds, Standard Life Investments and Andrew Milligan, head of global strategy, Standard Life Investments.

To read the full report, click on the link below:

http://pdf.standardlifeinvestments.com/GS_Perspective/getLatest.pdf