“Japanese equities have corrected in line with world equities at around 10%. Valuations in Japan actually look attractive. A lot of initiatives promoted by the Abe government are oriented towards equities doing well … it introduced a corporate governance code which asks companies to be more responsible about shareholder value. That’s promoting better return on equity,” Al Clark, Nikko Asset Management’s global head of multi-asset said.
Japanese Prime Minister Shinzo Abe started the Japan Nikkei 400 index in January 2014. To be in the ranks of the top 400 businesses that make up the index, companies have to meet stringent criteria. They are ranked on market capitalization, return on equity, disclosure of earnings information and whether they have independent directors.
Clark said that investors should use the latest bout of market volatility to bulk up on Japanese equities, given their better valuations, compared to the US – which he views as currently overpriced.
Clark disclosed that Nikko Asset Management has a favourable view towards India. Clark noted that India is a good defensive allocation as the economy is “fairly insulated” and is less susceptible to the impact of China’s slowdown.
Clark is however very selective when it comes to other emerging markets. He said that Nikko Asset Management downgraded Asian equities a month ago when it started becoming “nervous about what is happening in Asia”. Clark said that emerging markets, as an asset class, are not attractive.
Clark said that while lower oil prices translate into opportunities for many of the ASEAN countries that are oil importers, net oil exporting countries such as Malaysia remain vulnerable. Nikko Asset Management has not made allocations into Malaysia, Clark confirmed.
Clark’s view is mirrored by Moody’s, which adjusted downwards its GDP growth forecasts for many Asia Pacific sovereigns. Moody’s pointed out that weak demand from China has dampened the overall export outlook for Asia Pacific, with softer commodity prices weighing on export revenues, growth and fiscal balances.
Moody’s also noted that the depreciation of the Malaysian ringgit indicates a weakening environment.
“We see ringgit depreciation as a symptom of declining export revenues, capital outflows, and worsening investor sentiment towards Malaysia,” Paul Ghosh, Moody’s vice-president and senior research analyst said.