Japanese stocks are a solid investment option

Economy January 20, 2014 00:00


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THROUGHOUT 2013, the Japanese stock market topped all other bourses worldwide in yields generated. For instance, the Nikkei 225 index yielded an annual return (ending on December 27) of roughly 56 per cent.

Note that stock prices were still lower than past averages, which means they have more room to grow because the Japanese economy is now showing clear recovery signals after being in the red for years. 
Analysts have projected growth in gross domestic product of 1.7 per cent last year and 1.6 per cent this year.
In short, this is bound to be a golden year for investment in Japanese stocks. It is expected that the Japanese government will implement a policy to spur the economy further to enable the manufacturing sector to improve and catch up with the clearly improved domestic economy. 
Meanwhile, the central Bank of Japan is forecasting injection of more liquidity to keep the yen weak, at 105-110 per US dollar, to benefit Japan’s exports. Also, the BOJ will maintain its policy interest rate, which remains at 0.10 per cent. 
Inflation will, however, be higher |at 2.4 per cent this year to encourage private consumption. The Pension Fund will see more investment in stocks in the long term, which will support the Japanese bourse’s growth.
What is more, the Tokyo Stock Exchange is buoyed by the follow-|ing positive factors. First, public spending, boosted by Japan’s hosting the Olympics Games in 2020, is |bound to trigger massive capital inflows. 
Second, the announcement of a sales-tax rise from 5 per cent to 8 per cent this April will send more tax remittance to the treasury. In the short term, this tax rise could slow consumption, but in the long term, the treasury’s status will become more secure. 
And third, the projected growth of listed companies this year is 15-20 per cent. 
In short, these factors will buoy the TSE by 15-20 per cent for the year, propelling the Nikkei Index to about 17,000.
However, investment in stocks is exposed to risk arising from price fluctuations and exchange rates. Investors must therefore tolerate reasonable investment risk. 
For those with limited access to information or who have little time, we recommend that you invest in mutual funds with a focus on Japanese stocks over a period of six months or more to benefit truly from the success of Japan’s economic stimuli.
The Fund Management Department, Asset Plus Fund Management, contributed this article.