Japanese stock markets may have shuddered last week when the new Prime Minister of Japan, Fumio Kishida, mentioned in a speech that the nation could expect a “new capitalism” that would support the middle class, but investors had nothing to worry about, as Kishida quickly return followed a few days later.
“Investors reacted on the basis of the speech. I understand, ”said Daisuke Nomoto, global head of Japanese equities at Columbia Threadneedle Investments, a Boston-based asset manager with $ 593 billion in assets under management. At the heart of Kishida’s commentary was the perceived unfair tax rate differential between rich and poor, and wealth redistribution played an important role in his agenda.
“But based on the following action on his part, I think the plan [of wealth redistribution] is on hold at the moment, ”he said. “It’s a good thing about Kishida. He looks very flexible. If there is a good reaction, let’s go. If there is a negative reaction, let’s take a step back and re-analyze the situation.
Aside from the Kishida-inspired market drama, it is really Japan’s upcoming House of Representatives elections that are the key to prosperity in the country’s stock markets, Nomoto said, and it is expected that the current coalition between the Liberal Democratic Party of Japan and the Kōmei Party continue to hold the majority and provide the stability investors seek. “Based on a historical analysis of the last 14 elections, the stock markets reflect the elections in a positive way,” he said. “So there is a good chance that the markets will behave well before and after the election.”
Sectors Nomoto views favorably so far are IT, including machine vision and data technologies, and industry, including machinery, automation, and business services. “Innovation is a priority for us. The same goes for strong management teams and healthy balance sheets, ”he said.
“We need to make a clear distinction between investing in the Japanese economy and investing in Japanese companies. We are looking for large companies that happen to be listed in Japan that do not invest in the Japanese economy. Finding innovative companies with attractive valuations is therefore the way to go, and we believe that there are many opportunities to exploit this in the Japanese stock markets. “
There are four main forces that should make Japanese stocks desirable for international investors in the future, Nomoto said. First, a rising vaccination rate now puts Japan on a par if not better than other countries, including the United States.
Second, the valuations of Japanese companies remain cheap, especially given the financial health of these companies. “The net cash is twice as high as in the US stock markets,” he said. “Listed and unlisted companies have around 40% cash on their balance sheets. They have huge sums of money ready to be used.
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