Negative Sentiment on Japan is Not Justified

Japan remains one of the most attractive developed markets, despite equities falling 17% this year 

Dan Kemp 14 June, 2016 | 1:54PM
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Dan Kemp: With Japanese equities down nearly 17% year-to-date, I imagine that quite a lot of investors will be asking, whether that fall is justified and what's the outlook for the market going forward?

The first thing to understand is the reason the market has fallen and there seems to be a lot of confidence amongst institutional investors. Overseas investors own a lot of the Japanese equity market and they've gone underweight that market for the first time this year since 2012. So, there's clearly some negative sentiment. The question is, whether that sentiment is justified.

We'd argue that it isn't. Actually that although there is a lot happening at the political and economic level, when you look at the company level, the firms in Japan are making good progress. They have a lot of cash. Their profitability is rising and they are able to distribute that cash to shareholders. So, we see Japanese equities as one of the most attractive markets, particularly in the developed world as we look ahead for the long term. But remember, in the short, there's likely to be a lot of peaks and troughs. So, try not to get blind sighted by market movements and look at these falls as opportunities to create long-term value.

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Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA