The Outlook for Japan
IN PRINT ARCHIVE CIR Summer 2000
|The Outlook For Japan|
|by James Clunie|
Just over a year ago, investors would have seen a Japanese stock market that had significantly underperformed global equities for several years, and an economy that was very weak (the Asian crisis had added problems to an already weak economy). Pessimism reigned and global investors were underweighted in Japan. However, there was some cause for optimism: economic recovery from a low base appeared imminent, there was reform of the financial system and within major corporations, and leadership in certain technologies was evident.
Looking back, Japanese equities reached their nadir relative to global equities in the middle of 1998, following a relative collapse that spanned nine years.
In terms of legislative change, it is anticipated that full disclosure of pension underfunding will be required by April, 2001, creating greater transparency and a possible reorganization of cross shareholdings. The new Prime Minister, Mori, is expected to have similar policies to those of Obuchi, and it is likely that he will seek economic growth before tackling the huge fiscal debt problem that has arisen in Japan.
What could be the catalysts for market
There is continued scope for economic recovery based on investment and fiscal spending, although private sector demand has been falling for three years, and broad money growth, at just over 2%, is the slowest since 1994.
The maturation of postal savings of approximately C$15 trillion is under way, and though Japanese Government Bonds may be a favoured home for any money that is not reinvested in postal savings accounts, part of the money flow will likely find its way into Japanese equities.
Leadership in certain technologies, including mobile internet, remains an important catalyst.
Finally, we have seen the first hostile bid for some time (the bid by MAC for Shoei), which, while subsequently unsuccessful, sets a precedent for future corporate activity.
James Clunie is Director of Murray Johnstone International in Glasgow, Scotland