The coming year in Japan could well be a case of “the only way is up”, the head of Japanese equities at Schroders argues.
Shogo Maeda points out that Japan has faced a number of challenges during 2011, including the March 11 earthquake and tsunami, the nuclear emergency that followed, recent disruption caused by the flooding in Thailand and the knock-on effects of the eurozone debt crisis.
“So where do we go from here? Well, they say ‘when you think you are down, smile, because the only way is up’ – and there are many factors which indicate this,” he continues.
Maeda claims that equity valuations in Japan will start looking attractive next year. Benchmarked against overall market valuations to after the Lehman collapse in 2008 and 2009, Japanese equities appear to be discounting a “quite pessimistic scenario” and have the potential for a re-rating over the next 12 months.
“In addition, I am hopeful that 2012 will be a year where some of Japan’s competitive global industries, such as autos and electronics, will really take the spotlight and generate positive returns for shareholders,” the commentator adds.
He also notes that many Japanese companies have reduced their leverage, with the net debt-to-equity ratio for the 400 large listed companies in the NRI400 index standing at about half its level ten years ago.
Meanwhile, firms are starting to increase their operations in emerging markets, especially China and south-east Asia.
However, Maeda highlights a number of risks to Japanese equities that he expects to persist into 2012. These include the strength of the yen, political challenges facing prime minister Yoshihiko Noda and the future of its nuclear industry, as well as the uncertain global macroeconomic stage.
To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here.