Well, certainly for those who do not need to care about currency depreciation. While the Nikkei 225 Index gained over 70% in the past 2 years, the yen has lost a quarter of its value against the euro over the same time. As asset management houses are asked about their one-year investment outlooks without taking prospective currency fluctuations into account, one would assume they are all massively positive about Japanese equities: and they indeed are.
Reliance on Abe
Prime Minister Shinzo Abe, who recently won a snap election vowing to continue his unorthodox economic policies, came to power in December 2012, and had already started Abenomics when our sample of asset managers were asked for their outlook. Right from the start until this moment, a large majority have said each month that they expect Japanese equities to return in excess of 5% over the next month (indeed, in local currency).
Methodology: in the graphs, we compare what fund managers predicted would happen to the index over the following 12 months (the bars) to the actual performance (the dots). The bars use the left-hand scale and go from -100 (all managers think the market will drop 5% or more in the following 12 months) to +100 (all managers think the market will rise 5% or more in the following 12 months). The dots use the right-hand scale to what actually happened to the market. The red line indicates a 5% market gain. If the spots match the bars then mangers predicted correctly. For the manager predictions, Skandia collects every month the house views of 15-20 global fund management groups.
This faith in Abenomics has proved right in each but one month. Only in April, Japanese stocks returned less than 5%. This leads us to the conclusion that asset management companies got it right in 11 out of 12 months, not quite as good as the score for US equities but still pretty accurate.
So was the disastrous misjudgement for emerging market equities a one-off? We will see it in our next edition, covering European equities.
Platinum members can view the full details of the latest EIE Manager Sentiment Survey here.