Most Japanese industries are at a mature stage of expansion, and they are funding growth cautiously, but the more than half say they plan to increase the dividends they pay to shareholders, said Matthew Sutherland, senior investment director, commenting on the survey report.
“Companies are learning to benefit from Japan’s ageing population, and the ‘robot revolution’ is spurring investment as robotics appear everywhere from healthcare to housework. Meanwhile, the government’s Abenomics reform programme should help strengthen corporate governance and boost returns.”
The firm's annual survey of its credit and equity analysts was released just before the Bank of Japan's interest rate decision tomorrow, with the market expecting the central bank to cut further the already negative rates on reserves, while helping banks by offering them negative rate loans.
Consumer is key
Rising uncertainty from emerging markets and China, and geopolitical concerns are key worries, according to the survey.
“But, overall, the biggest risk our analysts see to investment returns is an unexpected slowdown in demand," Sutherland said. "This makes sense – slowing demand would undermine the consumer story that is clearly one of the key factors for the relative health of the developed world.
"If the consumer doesn’t come through as we expect him or her to do, then all bets are off.”
Regarding China, the industry cycle is maturing or even slowing, as companies adjust to the structural shift away from exports and toward domestic consumption, he said.
“Return expectations have taken a hit, which has global repercussions. However, while China’s industrial heartland is suffering, spending patterns are evolving, with consumers focusing less on food and more on recreation and travel,” he said.
The survey shows that the firm’s analysts believe that “the road will be bumpy and overall growth will inevitably slow down, even if from a high base".
The firm believes that the biggest concerns in emerging markets are Russia, Eastern Europe, Africa and Latin America, where sentiment has collapsed. “Corporate conditions are difficult and could still get worse over the year,” Sutherland said.
Among the top five performing Japanese funds that are available for sale in Hong Kong, the JPMorgan fund has the highest rate of return at 59% over the last three years, but it is also the most volatile of the top five.
Although the Nikkei 225 Index is up 25% over the last three years, doubts about the effectiveness of Abenomics are impacting investor sentiment.
Source: FE Analytics