Optimism on Japan persists despite S&P downgrade

Added 21st September 2015

Although Standard & Poor's downgraded Japan's credit rating by one notch to A+ last week, several fund houses say that they remain optimistic about the country's potential.

Optimism on Japan persists despite S&P downgrade

S&P's view is that despite showing initial promise, the Japanese government's economic revival strategy will not be able to reverse the country's economic situation in the next two years.

S&P's downgrade came the day after the Bank of Japan kept monetary policy on hold and stuck with a bullish message despite deteriorating data on the Japanese economy. 

Fund managers, however, seem to like Japan. Jim McCaughan, CEO of Principal Global Investors, told Fund Selector Asia that Japanese equities have performed well in the past two years in spite of modest growth. He noted that the weak Japanese yen is favouring exporters who have relatively strong market positions.

"We have a lot of our Japanese clients looking for assets with [export] growth due to quantitative easing in the country," McCaughan said.

Deutsche Asset & Wealth Management, through a research report published late last week, noted "Japanese and Eurozone equities offer the most relief potential following a significant market correction in August."

Al Clark, Nikko Asset Management’s global head of multi-asset, shares a similar view. He said that the latest bout of market volatility presents opportunities for fund houses to bulk up on Japanese equities. He said that Japanese equities are better valued compared to equities in the US, which he judged as overpriced.

Satyan Sanghrajka, UBS's head of business development for Asia Pacific, also noted recently that Japan's reform measures have supported growth in the real estate segment.

"Japan is an example of a (real estate) market that is liquid with most transactions at a loan-to-value ratio of 80%," he said.

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