Posted inEquitiesJapan

Time to bail out of Japanese equities?

The Bank of Japan cutting rates well into negative territory at the end of January was widely regarded as an act of desperation by investors, wiping out all returns from 2015 and sending down the benchmark Topix index to its lowest level since December 2014. So should we conclude this is all the country can manage, even with a vast quantitative easing programme and rock bottom interest rates?

With Japan reporting its economy shrunk 1.4% in the fourth quarter of 2015 on an annualised basis, investors may indeed well be asking what prospects there are for the aging nation from here.

There is justifiable optimism about the positive impact that corporate reforms and increased workforce participation by women could have, but this may well take many years to feed through into share prices.

In the meantime perhaps investors should bank any money they have made in the period immediately after the QE programme launched and have another look in five years’ time.

Looking at the chart below, many investors who added broad exposure to the market in 2013 or 2014 could still pocket a nice profit if they bail out now.

The direction of travel this year so far looks ominous though, meaning those who sit tight could be back where they started or even in loss making territory if things do not change quickly.

Part of the Bonhill Group.