Japan Funds on Track for Further Growth
An Olympic Games boost may help allay worries about a sales-tax hike

July 2018, London. Japan funds are an attractive option for European investors as the world’s third-biggest economy continues to recover and looks ahead to hosting the Olympic Games in 2020, according to the latest issue of The Cerulli Edge―European Monthly Product Trends.

Cerulli Associates, a global research and consulting firm, notes that index funds may represent the best buying opportunities in Japan. This is especially true for European investors who feel that a general macroeconomic bet on Japan recovering further from a dark period may pay off, while also feeling uneasy about the ability of managers to stock pick in a country thousands of miles from home, where few Europeans speak the language.

“Japan offers an opportunity in a year when many stock market benchmarks worldwide, including the S&P 500 and the FTSE 100, have hit new highs,” says André Schnurrenberger, managing director, Europe at Cerulli. “If an investor thinks that recent downturns in the major Western markets represent a buying opportunity, they should be piling into Japanese funds.”

Pointing out that the Nikkei 225 benchmark of leading Japanese shares would have to rise around 78% from current levels just to get back to its 1989 peak, Schnurrenberger adds that the country has made great progress in addressing issues such as overmanning and lack of productivity. “There is a reason it is cheap, but there are also several reasons why it may become less cheap,” he says.

Addressing the concerns arising from Japan’s planned increase its sales-tax rate next year, Schnurrenberger says that some spending is guaranteed by the Olympic Games of 2020 in Tokyo, which may help boost optimism and a sense of wellbeing in the country.

 

Other Findings:

  • Emerging market debt (EMD) funds fell heavily in May, especially those in local currencies, with the latest available data showing that the strong US dollar took its toll. Cerulli notes that flows have started to turn negative, in stark contrast to the heavy inflows of 2017. The firm adds, however, that some managers believe the EMD asset class to be attractive from a valuation point of view.
  • May saw the German market record its lowest monthly net inflows this year (€189 million/US$221 million). However, says Cerulli, the recent spike in volatility has not affected investors’ appetite for risk. Equities, with €1.3 billion, achieved its best-selling month since October 2017.

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