Posted inRest of APAC

OMGI’s Weatherston positive on Japan equities

Valuations of Japan equities have become more attractive compared to other developed markets, and Abenomics has helped drive up corporate profits, according to Rob Weatherston, Old Mutual Global Investors’ Hong Kong-based portfolio manager of the Old Mutual Japanese Equity Fund.

Currently the Topix’ 12-month forward price/earnings multiple is at around 14.6 times, which is lower than for the MSCI Europe, which is at 15.8 times earnings, and for the S&P500 at 18.2 times earnings. 

Foreign investors have also been net sellers in 2016, though Weatherston expects a reversal in the coming year.

“Investors are realising that they have made a mistake and will buy (the) market back,” said Weatherston, who joined OMGI in April this year.

Profits have been good in Japan, which helped drive the stock market, according to Weatherston. As of writing, the Nikkei 225 Index has risen to more than 19,000 from only around 10,000 in the beginning of 2013, according to data from Bloomberg.

Weatherston acknowledged that corporate profits have slowed down in 2016 because of a stronger yen, but he expects they will rebound in the coming year as the currency has weakened since September.

Profits have been good thanks to corporate governance reforms under Abenomics, according to Weatherston, adding that dividends and buybacks have become better this year.

Topix dividend is around ¥7trn ($59.2bn), while buybacks is around ¥6trn, he said.

Moreover, in addition to Bank of Japan’s buying ¥6trn worth of equities a year, or 1.7% of the Topix’ market capitalisation, it is estimated that domestic pension funds should be buying another ¥5.5trn in equities, according to Weatherston, citing data from Goldman Sachs.

“So this is a market where we could see that there is quite a strong demand coming from both the companies themselves and from domestic investors.”

Besides corporate governance, other structural reforms include the privatisation of the post office, agricultural reform, and the deregulation of electricity and the telecommunication industry, among others, according to Weatherston.

“2017 is going to be a year where we are going to see domestic monetary stimulus, domestic fiscal stimulus, external demand growth led by the US and emerging markets and a weakened currency, which would provide a good kicker for profits,” he said.

Investment themes

Abenomics gives investors a range of investible themes, especially for asset managers, according to Weatherston.

“The nice thing about having a policy-led administration is that active investors like us have plenty of interesting themes to look at and interesting companies to invest in.”

Weatherston noted that he looks at stocks more on the basis of themes, which may cover several sectors and stock market classifications.

Those themes that he is in favour of include robotics, regenerative medicine, driverless vehicles and infrastructure spending, such as large-scale urban redevelopment projects in Tokyo, Osaka and Fukuoka and the construction projects for the 2020 Olympics.

On a conventional sector breakdown, he is overweight financials that are sensitive to yield curve movements and basic materials. His biggest underweight is in consumer staples.

Putting Abenomics into context 

When asked about why he is positive on Abenomics while others have opposing views, Weatherston said that Abenomics should be put into context.

“When Abe took over, Japan was suffering for 15 years of deflation without any respite. Things were pretty bad, the Nikkei was at 8,000.”

Japan’s GDP deflator has gone up after 15 years since Abe was elected, according to Weatherston.

“We’ve seen asset prices in both real estate and equities go up substantially,” he added.

Besides price inflation, the job market has improved under the prime minister.

“Unemployment keeps going down. There is now 1.4 jobs for everyone looking for work,” Weatherston said.

In addition, under “womenomics”, Abe has already put in 1.5 million more women into the workplace.


Three-year performance of the Old Mutual Japanese Equity Fund versus its benchmark, according to data from FE Analytics.


Part of the Mark Allen Group.