by Jrg Billina, uro on Sunday
At 2.1 percent, there is no need to step on the brakes: while inflation rates are skyrocketing in the USA and Europe, inflation in Japan is rising only moderately. This displeases the consumers, because they are not used to rising prices. But Haruhiko Kuroda sees in contrast to Fed chief Jerome Powell or ECB President Christine Lagarde no need to change its accommodative monetary policy stance. Long-term interest rates remain at zero, short-term at minus 0.1 percent.
The multi-billion bond purchase program will also be continued. The associated weakness of the yen is intentional. It can give the export-oriented economy the boost it needs. So far, Japan’s top currency holder has been well received by foreign investors.
On the other hand, criticism of Powell is growing. He is risking a hard landing, they say. “Our worst fears have been confirmed,” said Ed Harris, chief economist at Bank of America. Lagarde, on the other hand, has to be accused of reacting hesitantly to inflation and of showing too much consideration for the highly indebted southern European countries.
So is the Tokyo stock exchange the more attractive alternative? It is not free of dangers, even in the largest financial center in East Asia, prices fluctuate heavily. However, the leading index Nikkei 225 has lost “only” ten percent since the beginning of the year. DAX or S & P 500 have lost significantly more. Investors see in contrast to the US or the euro zone no risk of recession. The Organization for Economic Cooperation and Development (OECD) expects growth of 1.7 percent for the year as a whole and 1.8 percent for the coming year. Domestic consumption is driving the economy. After a sharp jump in March, consumer spending continued to rise in April and May. Consumers spent more than five percent more on clothing in May than in April. “The trend will continue for a while,” Yuichi Kodama of the Meiji Yasuda Research Institute told Bloomberg.
Consequently, there is no lack of recommendations for getting started. They are primarily aimed at tactically oriented investors. On the other hand, a long-term commitment with high commitment is not (yet) recommended. Japan’s economy has fundamental weaknesses that cannot be rectified anytime soon. However, the chances are good for the second half of the year.
John Vail, Chief Global Strategist at Nikko AM, believes the Nikkei 225 will climb to 28,000 points by the end of the year. That would be an increase of at least six percent from the current status. Analysts at Bank Nomura even consider 31,000 counters possible in the next six months. This corresponds to an increase of 17 percent. In contrast, the current correction on Wall Street and on Europe’s stock markets does not seem to have bottomed out yet.
In addition to the prospect of continued low interest rates and expected profit increases averaging eight percent for the current year, favorable valuations are also attractive. For example, the Nikkei 225 has a price-to-earnings ratio for 2022 of 15.6, while the broader Topix index is 11.9. According to Reuters, investors invested the equivalent of 4.4 billion euros in Japanese shares last week, more than they have since last September.
Finally on target
The 77-year-old central bank chief Kuroda will not torpedo the good mood among investors. It’s finally going in the direction he’s been aiming for for so long. At currently around two percent, it has achieved the goal of price stability for the first time. He only intends to tighten the interest rate limit if inflation should gain significant momentum.
Investors consider it unlikely that he will take action during the remainder of his term of office, which ends in April next year. The first silver lining on the horizon for years should shine even more brightly.
Understandable: When Kuroda was appointed Fed governor in 2013, he promised to solve the persistent problem of deflation. Continuously falling price levels have done enormous damage to Japan. Consumers usually waited a long time to see whether goods or services became even cheaper. This forced companies operating in a highly competitive environment to lower prices further. Investments were also postponed or canceled altogether.
Wages also stagnated or fell. Japan’s unions have little bargaining power. As a result, according to the OECD, Japan’s per capita income is significantly lower than that of other industrialized countries.
One of the reasons for Japan’s so far so stubborn deflation is demographic change. For the eleventh time in a row, the population will fall this year. Strategies to increase the birth rate, such as increasing the number of childcare places, were unsuccessful. By 2040, the number of people in work could fall by 40 percent. Increased immigration could close the gap and boost the economy. But Japan is only reluctantly opening up to foreign workers. If governments do not succeed in launching urgently needed structural reforms, the stock market will lack a long-term price driver.
With course imagination
However, the currently available opportunities can be used. Among other things, with the iShares Nikkei 225 ETF launched by Blackrock. The Exchange Traded Fund includes Japan’s major companies. This includes, for example, Fanuc. The world’s largest manufacturer of industrial robots benefits from the efforts of many companies to increase productivity. According to Fanuc, it sells 8,000 robots worldwide every month. The main customers are the automobile manufacturers. In particular, they value the long service life of the machines. Many Fanuc robots have been in use for more than 20 years. For the fiscal year ending in March 2023, management expects sales to increase by 13 percent and profits to increase by seven percent. Goldman Sachs analysts recommend buying the stock.
Course fantasies are currently also igniting at Toyota. For a long time, the car manufacturer relied on hybrid vehicles. The group cared less about pure electric cars. But now the management wants to invest the equivalent of 11.5 billion euros in the expansion of battery production and battery development by 2030. In just four years, 15 new electric models are to come onto the market. Toyota raises the necessary funds. The car manufacturer has high cash reserves.
However, Tokyo Electric Power Company is currently one of the top-priced titles in Tokyo. The utility’s stock rose 100 percent in the first half of the year. The company makes money from rising energy prices. The current heat wave in Japan is also proving to be an advantage. With temperatures around 40 degrees, the air conditioning systems in many cities run at full blast.
INVESTOR INFO
Stock ETF Japan
The iShares Nikkei 225 ETF tracks the performance of the 225 most actively traded companies on the Tokyo Stock Exchange. Over a ten-year period, the ETF has gained over 100 percent. Within a year, however, the paper lost 14 percent. Price gains are again forecast for the second half of the year. IT stocks such as Softbank Group are weighted in the index at 22 percent. Cyclical consumer goods such as Fast Retailing or Toyota Motor account for 18 percent. The ETF is suitable for addition.
Stock fund Japan
Value stocks are also currently sought after in Japan. The Man GLG Japan Core Alpha Fund invests in them. Since the beginning of the year, it has increased by 14 percent. Managers Jeffrey Atherton and Adrian Edwards consistently deviate significantly from the reference index Topix. They are currently overweight Mitsubishi Estate, Subaru and Panasonic Holding. IT companies and electronics suppliers such as Sony are currently underweight compared to the index. The fund is currency hedged.
panasonic
In the course of e-car production, the demand for lithium batteries is also increasing. Three to ten kilos of lithium are required per vehicle. With Panasonic, investors can participate in the e-battery boom. The company is developing a battery that should increase the range by 15 percent. It is currently being tested by Tesla. In the past six months, the title has lost significantly. Courageous investors buy, the price-earnings ratio is ten.
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