Our Opinion: 2016
Japan: a buying opportunity
Japan has fallen into another bear market, with the Nikkei 225 index now 20% below its early December level.
According to John Authers in the Financial Times, it seems to have fallen victim to “a new form of contagion, from the oil price.” It was also the developed world’s top- performing market last year, so there were profits to take.
However, despite the drop, the fundamentals look auspicious. Plunging oil is good news for Japan, which imports almost all of its commodities. While the yen has strengthened recently, the big boost from the currency’s fall over the past few years has underpinned earnings growth at Japan’s heavyweight exporters.
‘Abenomics’ seems to be helping. We have seen inflation rise at a time when it has been moving in the opposite direction virtually everywhere else. The Bank of Japan may even increase the pace of is quantitative-easing programme. And, in a surprise move, the Bank of Japan has introduced a negative interest rate which will discourage savers from keeping their deposits in banks.
All this suggests that the latest market falls are a chance for long-term investors to top up their holdings. The discretionary fund managers that we work for are increasing exposure in several of our client portfolios.