Michael Roberge wants to see market labour reform and corporate reform first
Japanese prime minister Shinzo Abe’s recent stimulus measures to boost economic growth in the country have led to a rush into Japanese stocks, prompting global speculation that the world’s third largest economy has finally shaken off two decades of stagnation.
But Michael Roberge, president and chief investment officer of MFS Investment Management, is sceptical.
The good news, he told attendees at AsianInvestor’s eighth annual Asian Investor Summit in Hong Kong this week, is that Japan is finally getting aggressive from a policy standpoint after stagnant economic growth and deflation for almost 20 years.
“The bad news is they’re 20 years too late,” he says. “They should have done this 20 years ago.” While the US applied aggressive quantitative easing and extensive stress tests on banks, Japan was “very late and very slow” to do the same.
As such, it remains unclear whether investors should invest in the country now, mull it as a long-term investment opportunity or simply avoid it altogether, Roberge says.
He may have a point, given the speed and strength of the rise. The Nikkei was up 46% and the Topix 43% year-to-date as of Tuesday’s close, and Japan hedge funds gained 6.63% in April and 18.55% in the first four months of 2013, according to data provider Eurekahedge.
Certainly, while many insurance companies missed this year’s earlier run, Société Générale notes that some are mulling adding exposure and potentially using derivatives for downside protection.
“The jury’s out," notes Roberge. "We need to see [actual] structural market labour reform and structural corporate reform [first]." While Japanese companies will become more competitive, he doubts they can measure up against other international firms just yet. “We’re a little sceptical on Japan,” he adds.
As the yen depreciates, Japanese investors will invest more offshore, ultimately leading the country to rely on external financing and investment.
“As more money leaves Japan, [the country] will have to worry about external financing. They could end up with stagnant growth, higher inflation [and] interest rates rising [which] would be very painful when the [debt to] GDP is over 200%,” notes Roberge. “It’s a big risk for Japan if the quantitative easing doesn’t work.”
MFS believes the US has the most to offer equity investors now, noting that the country survived “the worst recession since the Great Depression”, as well as a tepid recovery. Yet confidence is returning to the housing and automotive markets, which should result in modest multi-year growth for the economy of between 2% and 2.5%.
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