Japan: cheap equities and expansionary monetary policy
Investments
Posted by MoneyController on 23.01.2023
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The bear market has also hit Japan in 2022. But according to an analysis by Richard Kaye, manager of the Growth Japan portfolio at Comgest, the cheap valuation of some stocks and the continued low interest rates (by the Bank of Japan) make the Japanese stock market (especially growth stocks) attractive. This analysis was also published in the magazine "FONDS Professionell".
Short-term interest rates of -0.1% and 10-year government bond rates of around 0% make Japan an exception in the developed world: Japan's monetary policy remains decidedly expansionary compared with the Federal Reserve, the European Central Bank, the Bank of England, etc. However, the markets were expecting a rate hike in Japan as well. This led to a bearish phase in the Japanese equity market, which affected the entire market.
As Kaye points out, the point is that investors seem to have been unable to fully appreciate the quality of certain individual companies. For Kaye, there is no shortage of opportunities in the Japanese market. They are mainly to be found in the technology and growth sectors. In addition to an expansionary monetary policy, this sector can benefit from a demographically growing market such as Asia and quality fundamentals (low debt and outward projection).
One of the problems for those investing in Japan, says Kaye, is that investors do not have enough information about Japanese companies. This leads, and has often led, to their value being underestimated. However, Kaye points out that undervalued stocks with room to grow are opportunities for investors.
On the other hand, predictions about the Bank of Japan's (BoJ) monetary policy moves have also proved wrong. As Kaye explains, it is true that a rise in interest rates would be disastrous for the large number of indebted small and medium-sized enterprises. Inflation figures are very high at the moment: +3.7% in November and +4% in December. However, BoJ officials believe that the inflation situation is currently under control and that it is a temporary phenomenon.
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