Love it or hate it, there is no denying that investors in Japanese equities have been richly rewarded, with the Nikkei 225 climbing 12,000 points in the past two years.
Which begs the question, is such strong conviction still warranted?
“Investors were first drawn in by the yen devaluation, and what has kept them there is the belief that the corporate reforms are going to bear fruit,” said James Davidson, manager of the JPM Global Equity Income Fund.
Peter Lowman, CIO at Investment Quorum, added: “Japan is interesting because – barring the Veneuzuelan market, which no one can understand – it is the best-performing market this year.
“It has come from around 9,000 to almost 21,000 on the Nikkei in the last couple of years and still has legs through Abe’s ‘three arrows’ programme, while the weakened currency is also now benefiting companies.”
However, there are those that are less convinced by ‘Abenomics’, many of whom are wary of being burned once again, citing Japan’s failure to deliver on past promise as reason enough to believe the country is unlikely to change this time around.
But there are other factors, as Davidson, whose portfolio holds a 11.4% Japan weighting, explains.
“People are cautious because of Japan’s history, but a lot of it also comes down to the macroeconomics,” he said.
“Japan is very sensitive to the exchange rate and US 10-year Treasury yield, so as a market it is a play on global growth and exports. Then there is the corporate interaction, which has not always been shareholder-friendly.
“It is a market that has disappointed over time. It has gone from 50% of MSCI World at its peak down to 8% today, so it has not been without its disappointments. There have been better stories to play, such as the US recovery and European reflation, and the number of Japan experts is not what it used to be, so a lot of firms do not have the resources to invest.”