Fidelity weighs up Japan opportunities

The recent market volatility has created a number of stock picking oppportunities in Japan, according to Fidelity Worldwide Investment.

Results today revealed that Japan’s GDP grew by 1.5% over the third quarter, the first such indictation of growth in over a year.

Fidelity suggests an isolated recovery for Japan amid the market volatility has led to valuations reverting to historical means, and a number of undervalued, highly-liquid companies are now offering buying opportunities.

June Yon-Kim, portfolio manager for the Fidelity Japan fund, says: “On any number of valuation metrics, both spot and cyclically-adjusted, the Japanese equity market is trading at historic lows.

“Interestingly, a majority of Japanese sectors are the cheapest globally, something that certainly could not have been said 20 years ago. Within this there are some exceptional opportunities at the stock level.”

Japanese companies are reporting record cash reserves and increased overseas presences as well as earnings bases, in response to ‘sluggish domestic demand’.

Japan’s recovery will suffer as a conseqeunce of deteriorating external demand, even after domestic supply routes have largely returned to normal.

Fidelity predicts these supply issues could re-emerge resulting from the recent flooding in Thailand.

The asset manager has also given Japan an equity risk premium rating of 4.9%, based on the current yield of ten-year government bonds against the expected return of a given equity market.

This places Japan behind Western economies including the UK and Europe but ahead of emerging markets such as Brazil.

To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here.