Our Opinion: 2015
Japan’s bull market to continue
Japanese stocks have had a superb start to the year. The Nikkei jumped to a 15 year high. In Dollar terms, the Nikkei and Topix are the world’s best performing equity markets so far this year, gaining around 10%.
The rally is not likely to end soon. The latest data suggests that the economy continues to recover from last year’s recession. Industrial output increased by 3.7% month by month in January, whilst business confidence has risen to an eight month high.
Consumer confidence has leapt as a result of falling unemployment and lower energy prices. Wages are also likely to have a healthy hike in this spring wage negotiations between unions and large employers. If increases emerge of 2.5%-3%, Aaron Back from the Wall Street Journal has declared that the Bank of Japan “will likely be satisfied that Japan is well on its way from exiting deflation.”
If, however, that does not become the case, it will step up the pace of quantitative easing to get inflation back to its 2% target as fast as possible.
More liquidity would reduce the currency’s value and add another positive to a market that already looks attractive. James Makintosh in the FT points out that profits are expected to rise by 15% over the next year. This is more in Europe and, in the UK and US, they appear to be falling.
Internal investors are supporting their market again – particularly pension funds. Corporate governance is improving. Valuations are reasonable. Little wonder the Discretionary Fund Managers that we work with think there is a strong case to but Japan.