Way to go: An electronic stock board shows the Nikkei 225 index at a firm in Tokyo. Bamba says Japan is an interesting investment destination for investors globally, citing the contrast with the restrictive monetary environment in US and European markets. — AP
TOKYO: Japan’s much-anticipated exit from its ultra-easy monetary policy is likely to have the unusual effect of making the equity market the biggest beneficiary of interest rate hikes.
That’s the prediction of Yue Bamba, head of Japan’s active investments at the world’s biggest money manager, BlackRock Inc, who flagged that big underweight positions point to further fund flows into the market.
His comments come as bets that the Bank of Japan (BoJ) will shift policy, reshaping the investment landscape in Japan.
A decade after the late Prime Minister Shinzo Abe introduced reflationary measures, dubbed Abenomics, Japan seems to be in its final stage of declaring victory over decades of deflation.
“The focus of Abe was getting Japan out of deflation, and that was enough to capture the minds of global investors,” Bamba said in an interview last Wednesday.
“With everything from strong earnings to increased capital expenditure providing a tailwind, there’s more behind equities than other asset classes,” added Bamba.
“Japan sticks out as a big underweight in portfolios that there shouldn’t necessarily be anymore.”
The central bank has been laying the groundwork to deliver its first rate hike since 2007 as inflation has remained above its price target of 2% every month since April 2022.
Bamba expects the BoJ to start normalising policy as early as March but said any change is likely to be moderate and accommodating.
“This makes Japan more of an interesting investment destination for investors globally,” he said, citing the contrast with the restrictive monetary environment in US and European markets.
Robeco Institutional Asset Management and BNP Paribas Asset Management share the bullishness.
“Japanese companies are under pressure from both foreign and domestic investors, along with the government and the financial markets regulator, to return more capital to shareholders,” Arnout Van Rijn, a fund manager with Robeco Sustainable Multi-Asset Solutions, wrote in a note.
The team is already long Japanese equities, using derivatives that predict they’ll extend recent highs, he wrote.
The benchmark Nikkei 225 Stock Average climbed 15% so far this year following a 28% surge last year and is within sight of a historic peak.
Share buybacks are on pace to exceed those last financial year, which was already the highest since 2005, said Rie Nishihara, JPMorgan Chase and Co’s chief Japan equity strategist.
She cited about 8.5 trillion yen worth of buyback announcements as of the start of this month.
Wei Li, a multi-asset quant solutions portfolio manager at BNP Paribas Asset Management, also favours equities over the yen and Japanese government bonds on the view that the BoJ’s interest rate increases will be gradual. — Bloomberg
