J O Hambro Capital Management’s Scott McGlashan believes the recovery of Japan’s economy and stock market should continue in 2010, especially if the Bank of Japan eases monetary policy.
McGlashan, senior fund manager of the £182.2m JOHCM Japan fund, says at the same time as quantitative easing ends elsewhere, it may just be beginning in Japan.
Last year Japan increased its balance sheet by just 6% he adds, compared to the Federal Reserve and Bank of England which both doubled theirs.
"Japan did not join the party last year and no monetary stimulus artificially pushed up share prices," McGlashan says. "At a time when the Fed, ECB and Bank of England are looking for exit strategies, the Bank of Japan has huge capacity to ease.
"Over the next year or two the actions of central banks threaten to undermine the rally in security prices see in developed world over the past year, with the exception of Japan where central bank activity could help push prices higher."
McGlashan says Japanese equities are near historically cheap levels following a collapse in growth and profits unprecedented in the post-war period. However, he believes corporate Japan is now recovering rapidly and has structured the fund to capitalise on the stock market's recovery.
"The Japan fund portfolio is really built for the recovery of the Japanese economy and stock market," McGlashan says. "Profits began to rebound in the summer of 2009 and will accelerate in the current year. As a result, the valuation of Japanese shares should fall to near 50-year lows on most metrics.
"Corporate Japan has already de-leveraged, and the level of corporate gearing has fallen back to the levels prevailing in the 1960s. At a time when the ability of companies in the United States and Europe to expand is inhibited by their need to de-leverage, Japanese companies are exceptionally well placed to take advantage of the potential growth that emerging markets or new technologies may provide."
