Robert Burdett 2017-12-01 07:18:59
Keeping the three arrows on the straight and narrow
I have been travelling to Japan for many years, but my most recent visit was slightly different. On the Friday night before I returned home, I achieved a longheld ambition: to see a Grand Sumo Tournament live.
It was fortunate timing as the tournament is only staged in Tokyo three times a year.
As the remarkably flexible, 200kg adversaries performed their pre-bout ceremony of throwing cleansing salt in the air, before crashing against each other with huge power and much technique, I reflected on my trip.
The image of Japanese corporations, rather like the Sumo wrestler, is that they are out of shape as a result of a ‘jobs for life’ culture, inefficient balance sheets, few independent non-executive directors and a lack of shareholder focus.
But as with the Sumo, appearances can be deceiving. Tokyo remains hugely vibrant. Through our meetings with fund managers, visits to Japanese corporations, the conference talks from central bankers, politicians and strategists, we could see the continued changes and improvements.
These have been steered, in the past four years, by prime minister Shinzo Abe and his policy of Abenomics. This consists of the ‘three arrows’ of fiscal stimulus, monetary easing and structural reforms.
Change afoot
Although the market has significantly underperformed this year, sterling investors have been bailed out by the currency – unless they were hedged.
Recently Japan has, perhaps unsurprisingly, seen a fall in investor confidence as they start to challenge the success of Abe and his programme of reforms.
With this in mind, it seemed like a sensible time to visit these islands to try and get a better understanding of both the challenges and opportunities our managers face.
It is true the momentum of Abenomics peaked in effectiveness a while ago but the assistance of the Bank of Japan may provide further benefits.
With the confirmation, in late September, of the latest policy measures from the Bank of Japan, we can confirm that the expectations of Tokyo-based market participants were more accurate, whereas the international community had expected more. The market was up by 2.7% on the day of the announcement nonetheless.
Lost in translation
Japan has not always been easily accessible. On previous trips it was difficult to navigate the sprawling metropolis of Tokyo.
Road, train and subway signs were only in Japanese and even signs at the airport were not tourist friendly.
As a result, Tokyo was way down in the inbound visitor rankings. Abe and his government have made a huge effort to attract inbound tourism and their efforts seem to be working.
According to the World Bank, Japan saw approximately 13 million inbound visitors in 2014 and 20 million in 2015. The government has recently updated its target to 40 million in 2020 and 60 million for 2030.
This may sound ambitious but by comparison the UK, a smaller country with half the population, received 36 million inbound tourists in 2015, according to Visit Britain.
On this trip we noticed there were special discounts for tourists and help with transporting items to the airport.
Weight watchers
This visit provided well-timed insight into a changing economy, the rate of change and perception of that change across various markets and industries.
It also provided an opportunity to gain much deeper knowl-edge into a number of our key Japanese holdings.
Like the impressive competitors taking part in the Grand Sumo Tournament, we believe it is possible to be fat, with sub-optimal economic and corporate efficiency, but fit, meaning corporate good health and high savings.
The fat is not coming off as quickly as we would like, there are many world-class Japanese companies that are cheap and the world is underweight, unlike us.
Time will tell how Abenomics unfolds but we will be back next year for a further look.
Robert Burdett Co-head of F&C multi-manager
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