10th September 2020

Quilter Cheviot: Japan after Abe

Today I’m going to take the excuse, of Japan’s Prime Minister Abe’s decision to step down recently, to talk about Japan. For the last eight years, Prime Minister Abe has been the international face of Japan, a pro-business, pro-market approach that saw Abenomics become mainstream, got us all excited about corporate governance codes, and led to the wonderful sight of Prime Minister Abe taking the role of Super Mario at the Rio Olympic closing ceremony. Sadly, for us all he wasn’t able to open the Tokyo Olympics this summer.

So, what is the future for Japan as an investment opportunity going forward? I think there are three key reasons. Firstly, despite it having a rapidly ageing population, or perhaps because of it, Japan remains a land of innovation, whether that be automation and robotics or cutting-edge technology. The companies associated with these technologies are often world leading. The second reason is the changes brought on by improved corporate governance within many Japanese companies. Whilst we are only part way along the journey in many cases, this is very much part of Prime Minister Abe’s legacy and quite possibly what he will be best known for. Finally, Japan remains a cheap market and indeed the returns seen since 2012 have been entirely due to earnings growth rather than any re-rating. In part, that has been because overseas investors, often the marginal buyer or seller, have been reducing Japanese exposure over recent years, with approximately $70bn sold this year alone. On the flip side, it is interesting to see Warren Buffett has made his first major investment in Japan in recent weeks, with a $6bn investment in five trading companies. Is this the start of a turn in sentiment perhaps?

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Investment Commentary, Asia, Investments