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It was almost – but not quite – like (the good) old times in Japan as nearly 1,000 fund managers, other investors and corporate executives gathered in Tokyo’s Grand Hyatt hotel to kick off CLSA’s 8th annual Japan forum this week.
As we noted last year, despite the gloomier mood back then, CLSA has for nearly a decade managed to make its annual bash the highest profile investor gathering hosted by any western group in Japan. Extra cachet has come from lavish, end-of-conference parties that usually feature an internationally renowned act (mainly ones that appeal to the over-40 hedgie and banker crowd, such as last year’s appearance of Duran Duran).
This year, conference participants – featuring what CLSA says are 700 institutional investors from more than 20 countries and executives from more than 150 publicly listed companies – will hear a range of industry executives, analysts and specialist speakers, from uber-investor Marc Faber to Iranian film director Amir Naderi and on issues concerning Japan, the rest of Asia and indeed, the world.
The timing is partiularly auspicious, however. Japan’s stock market is basking in newfound status as a regional darling, and indeed, has beat all expectations to become one of the best performing stock markets worldwide this year.
This despite the move by Moody’s last week to downgrade its outlook for Japan’s sovereign debt. No matter — stock market investors were unfazed.
The normally sceptical media, which more often than not over the past few years has portrayed Japan as a moribund market, have found new enthusiasm.
As the FT reported earlier this month:
As investors have pulled out money from emerging market equity funds, they have poured it into developed markets. Long unloved by investors, Japan is the region's biggest gainer.
And – in what might be a timely warning to investors who believe the quip that when the New York Times gets onto an investment story, it’s time to sell – the ‘gray lady’ came out on the same day as Moody's announcement with an article headined: "Japanese stock market is getting new respect".
“Japan's government finances are on the verge of collapse while its economy has floundered for two decades”, it noted, asking why global investors now consider Japanese stocks a buy.
The answer, according to Charles de Vaulx of International Value Advisers, is that "Japan is by far one of the cheapest markets in the world”. While “universally hated”, he added, it might well be “one of the world's best-performing markets over the next five years."
In the past week alone in the FT’s pages, commentary has ranged from John Plender’s column, “A compelling case for investing in Japan”, to a bullish opinion piece by Japan analyst Peter Tasker that suggests international investors are wrong if they believe Japan is in decline.
This new bull mood is not just confined to the media. The past few weeks has seen a slew of research notes from analysts and economists extolling the attractions of Japan. They range from RBS Securities to Nomura, JPMorgan and – of course, CLSA – where various analysts and Asia strategist Christopher Wood have been pointing to Japan’s ‘outperformance’ in recent months.
Wood told FT Alphaville on Thursday that Japan’s bull run would most likely continue “as long as investors remain convinced the US is on track to recovery” and as long as they are concerned about spiralling inflation elsewhere in Asia. He gives it “at least” another quarter or even two.
As for concerns that the yen’s strength may finally weigh on Japanese corporate profits. Even the usually tight-lipped Bank of Japan governor Masaaki Shirakawa suggested the economy can weather the impact of the yen’s current strength. As he told the Wall Street Journal, “at this moment, it is not working as an additional risk factor”.
Perhaps the last word here should go to Lex, which recently observed that “something odd is happening in Japan”, explaining:
In early November, investors started pouring money into the nation's equities, as they often do in the run-up to Christmas. What is unusual is that the cash is still coming. Fifteen consecutive weeks of net inflows is the best run for four years.
The trend is partly due to a pull-back by investors from China and “uncomfortably bubbly markets” in South East Asia, it adds. Yet, “the big buy on Japan has underpinnings in logic” and ultimately, concludes Lex, “if the untypically long run of investment marks a reawakening of interest in high-quality companies selling high-quality goods, it is both welcome for Japan, and overdue”.
Related links: Does Japan really win from commodity inflation? - FT Alphaville Special report: Investing in Japan – FT Singapore, and why Tokyo is hollowing out (again) – FT Alphaville David Pilling: Japan finds there is more to life than growth – FT
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