"Remember buy and hold? It's back." So starts Chris Taylor in his presentation on the changing fundamentals of global equities and why Japanese equities are miunderstood, under-owned and mispriced.
Taylor believes we're gearing up for a three stage global bull market, one that will last 15 years. How does Neptune's investment director and head of research justify this view? He believes analysts are generally too pessimistic; that there's a massive amount of growth coming that even Europe can't derail--Europe will just become less and less significant; that there's plenty of money parked on the sidelines that's due to come into the investment world; and that the most extreme example of this environment is Japan.
So what is it about Japanese equities that mean they're so well placed, contrary to many years of headlines focusing on Japan's shrinking economy and contracting prospects? Taylor says Japanese companies realised 15 years ago that they needed to get out of Japan. With the economy contracting and the population declining by 1% per annum, Japanese companies have been activly investing beyond their own shores and are now some of the most multinational companies you'll come across, Taylor says. These multinationals benefit from global trends, with non-OECD exposure offsetting declines in domestic sales, thereby avoiding the demographic drop in Japanse domestic demand.
That's not to say that all Japanese companies are worth investors' money. Taylor warns that, given the Japanese backdrop, investors should ignore Japan, ignore Japanese companies that generate the majority of their earnings in Japan, and look simply at multinational companies.
Taylor sees huge opportunities for companies--wherever they're based and whatever their business is--to tap into global growth. In the first ten years of this century, the economic order was completely reversed, with OECD countries now responsible for the minority of global growth and just half of world trade. This is now a "multi-polar world," Taylor says; no longer do we just depend on China or the US, now "everyone's in on the act" and non-BRIC emerging economies are doing particularly well.
So why are we all so doom and gloom? Analysts are too pessimistic, is Taylor's answer. The positive global growth trend is set to continue yet the markets don't understand this. What can investors do to benefit from this trend? Look to invest in multinational companies, would be Taylor's answer. Markets are not expensive, neither in OECD countries or non-OECD countries, and it just so happens that Japan stands out as an exception--"the biggest bargain of the lot," though Taylor concedes that we would expect him to say that, being a Japan equity fund manager.
