IF the only way of banishing the post-festive blues is to book a holiday, then why not join the throngs heading eastward to Japan?
The home of iconic tourist destinations such as Mount Fuji, the Temple of the Golden Pavilion, and Tokyo’s Imperial Palace is exploding in popularity. Overseas visitors, thanks to easier to obtain visas and duty-free shopping, are just one of the reasons why the country is also firmly back on the map for investors.
Sarah Whitley, manager of the successful investment trust Baillie Gifford Japan, says there are plenty of misconceptions about Japan that she frequently must dispel — not least it being too expensive for the average tourist visiting from abroad.
She says: ‘Inbound tourism has exploded, mainly from Asia. Figures suggest 19.9 million people will have visited this year, while the government was aiming to reach 20 million by 2020.’
People stuck in the past also have the perception that they will be squashed on to packed underground trains in Tokyo, but that image is all wrong.
She says: ‘The country has invested in infrastructure and has five new subway lines. There is a gap between reality and perception. That also includes the view about demographics — such as not having enough workers to pay for pensioners. In fact, Japan doesn’t have the demographic issues that other countries have.’
The economic policies of President Shinzo Abe — first implemented three years ago when he came to power on Boxing Day 2012 — have provided a stimulus.
The three-arrow program
Dubbed Abenomics, the ‘three arrow’ program includes beating deflation by pumping money into the economy and implementing structural changes to make Japanese companies more attractive to shareholders — including better corporate governance and dividend policies. Whitley tends to look beyond all the economic noise, focusing instead on the companies she thinks will produce strong growth whatever the financial weather.
Internet company SoftBank — which owns 30 per cent of Chinese e-commerce giant Alibaba — and digger and tractor maker Kubota are just two firms she likes. ‘The latter is not glamorous but is effective,’ she says.
Stock market excitements
Another holding she hopes will add spice to the trust’s performance is Japan Exchange Group, owner of the Japanese stock market. She says: ‘If people move their money from bank deposits to stock market investments in greater numbers as is hoped, then it will benefit.’ Her strategy, which has been more or the less the same for the 25 years she has run the trust, has served investors well. Its performance has consistently beaten the FTSE All-Share over the past five years, for example.
Brian Dennehy, of fund scrutineer FundExpert.co.uk, is optimistic about the Japanese stock market and is impressed by the Baillie Gifford trust.
He says: ‘While many people still fret about Japan, corporations have considerable potential just by focusing more on shareholder value and by improving very low productivity compared with Western companies. In 2015 Japan was largely overlooked by UK investors, but it was the best performing major market. Double-digit gains again in 2016 would not be a surprise.
‘The Baillie Gifford Japan Trust has superb consistency. Since Sarah Whitley took over in 1991 the trust has generated an annual return of 5.6 per cent, compared with 1.4 per cent for the average Japan fund.’
His only word of warning on the trust is its level of gearing — the amount the trust borrows to invest. He says: “It is quite high at the moment. This exaggerates price movements in the trust, so it is not for faint-hearted investors.”
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