The land of the rising sun. Once an economic juggernaut that could do no wrong, the Japanese economy has taken a turn for the worse over the last two decades which has seen it slip in and out of recession for the past 20 years. The Japanese stock market has seen consistent falls in its prices over this time but now there is reason to finally be cheery. 2015 should be a good year for Japanese stocks and here are 3 reasons why.
1) Quantitative Easing (Q.E) – The Bank of Japan recently passed a bill to increase Quantitative Easing in 2015. And everyone knows what Q.E means. Q.E acts as a monetary heroin of sorts which will prop up both equity and bond prices to new heights. Read this article to see how Q.E led the american stock markets to record levels over the past 5 years.
2) Currency – The Yen has fallen to a five year low against the worlds serve currency – the US Dollar. In fact, it has fallen more than 7% since the increased stimulus measures were announced at the end of October. This devaluation of the Yen should provide a boost to both the competitiveness and earnings of the Japanese export sector and make imports more expensive.
Whilst the weakening of the Yen has been good, any further drop in its value cannot be too good. This is because the Japanese stock market has provided returns of over 92% over the past three years in Yen terms, but when these profits are converted to Pounds Sterling, returns are only 24%
3) Low Oil Price – As Japan is a big net importer of oil, falling oil prices will only help Japans current account. For most companies, especially those based in oil import countries like Japan, lower oil prices is positive as it boosts profitability due to lower transport and raw material costs. Lower oil prices should also reverse the effects of the increase in consumption tax (VAT) by increasing the populations disposable income.
The best and least costly way to get exposure into the Japanese stock market is by buying an index tracker. You can get trackers for TOPIX and the NEKKEI 225 with most online platforms (brokers). If you need a little bit more help or you think active management is better placed to make the most of the above reasons, buy into a fund that heavily encompasses Japanese stocks.
Below is a list of funds that heavily encompass Japanese stocks that you may be interested in. As always, do your own research and know the risks involved before making any investment decisions.
- Jupiter Japan Income
- Invesco Japanese Equity Advantage
- GLG Japan CoreAlpha
- M&G Japan
- Schroder Japan Alpha Plus
If you are looking at my tips for which funds will outperform this year, have a look at the three best funds for 2015 .
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