Q&A: Japan, Covid-19 and coping with market volatility
Insights

Q&A: Japan, Covid-19 and coping with market volatility

What is the team’s view on the current environment?

The past few weeks have been volatile for both global and Japanese markets amid Covid-19 concerns, presenting a challenging time for investors globally.

In recent weeks, liquidity in the global economy has been a major area of concern. However, supportive measures from central banks and governments globally have been implemented to mitigate the challenges faced by households and corporates during the economic shutdown.

Relative to other countries, cases of Covid-19 in Japan have been modest. However, it is still witnessing a slowdown in domestic consumption growth, while its sensitivity to the global economy makes it susceptible to the recessionary environment in the near term. Once liquidity constraints return to normal, we believe the credit and corporate earnings environment should start to show signs of improvement.

The Bank of Japan has rolled numerous measures to cushion the impact of Covid-19, doubling its annual capacity to purchase ETFs and REITs, and increasing the purchase of commercial paper, alongside corporate and government bonds. Furthermore, we expect the government to approve a supplementary budget in late April, which, combined with ¥26 trillion in the previous stimulus package at the end of 2019 will be close to 20% of Japan’s GDP – far larger than the country’s stimulus measures during the global financial crisis.

For the remainder of 2020 we can expect a hit to both GDP and corporate earnings globally – with Japan being no different. While we don’t expect the virus to derail long-term drivers, we believe there will be a transitory economic impact with a rebound in growth once the virus is contained. It’s always tough to identify when markets bottom, however we wouldn’t be surprised if we were close given the unprecedented size of the financial support. With that said, we still need to bear in mind that market volatility can be elevated occasionally until the dust settles.

Japanese companies have significant amounts of cash on their balance sheets, a total figure of approximately ¥200 trillion, which is equivalent to 40% of the economy’s GDP. Given the challenging environment, we believe this cash hoard will be utilised effectively to cushion the blow. Given Japan is currently one of the cheapest equity markets globally (where P/B is at 1x), we are starting to find a lot of opportunities to buy quality businesses with a huge discount to intrinsic value.

What has the team been doing in portfolios?

Despite the challenging economic environment, coupled with unprecedented levels of volatility in the markets, we continue to adhere to our disciplined investment process by focusing on the companies we want to own in the long term. We’ve been upgrading the quality of the portfolio by taking advantage of share price dislocation – increasing our exposure to those companies with solid balance sheets and which can generate sustainable free cash flow.

Given adjustments to cash levels over the past couple of months we have been deploying the dry powder in buying quality franchises at an attractive discount, while still maintaining a stable balance of secular growth and cyclical exposure in the portfolio.

We have managed to mitigate losses in this challenging environment, outperforming the benchmark (MSCI Japan) year to date, and demonstrating strong downside protection. In an economic downturn the team have been able to generate excess alpha both in cyclical sectors and stable sectors consistently. This highlights our strong ability of stock selection supported by multiple sources of proprietary research.

Have there been any changes to our outlook/long-term themes in portfolios?

In terms of our long-term outlook there has been no material change. Concerns surrounding Covid-19 have materially clouded the short-term outlook for Japan, given sensitivity to the global economy. However, stepping back from the near-term headwinds, there are still supportive structural trends, such as corporate governance and labour market reforms. Japanese companies are increasingly distributing their vast cash hoards to shareholders through dividends, buybacks and investments for organic/inorganic growth, benefitting long-term investors like ourselves.

Similarly, in portfolios we remain constructive on our long-term secular themes including automation, an ageing population, data traffic growth and shareholder-friendly activities. Given our differentiated investment process and strong investment capability, we remain well positioned to effectively exploit inefficiencies in the Japanese equity market. We believe our concentrated all-cap approach with a quality bias should continue to help preserve and enhance the value of our clients’ assets – demonstrated by both our high upside participation and solid downside protection over the years.

20 April 2020
Daisuke Nomoto
Daisuke Nomoto
Global Head of Japanese Equities
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen
Listen on Stitcher badge
Share article
Share on linkedin
Share on email
Hauptthemen
Verwandte Themen

PDF

Q&A: Japan, Covid-19 and coping with market volatility

Note: all data as at 8 April 2020, unless otherwise specified. Source: Bloomberg.

Wichtige informationen

Das hier zugrundeliegende Research und die Analysen sind von Columbia Threadneedle Investments für die eigenen Investmentaktivitäten erstellt worden. Aufgrund dieser sind möglicherweise bereits Entscheidungen noch vor dieser Publikation getroffen worden. Die Veröffentlichung zum jetzigen Zeitpunkt geschieht zufällig. Aus externen Quellen bezogene Informationen werden zwar als glaubwürdig angesehen, für ihren Wahrheitsgehalt und ihre Vollständigkeit kann jedoch keine Garantie übernommen werden. Alle enthaltenen Meinungsäußerungen entsprechen dem Stand zum Zeitpunkt der Veröffentlichung, können jedoch ohne Benachrichtigung geändert werden.

Verwandte Beiträge

17 April 2024

In search of sustainability – following Highway 101

Travelling down the US west coast we met 25 companies in five days. Learn more about the tech and healthcare businesses shaping our future.
Read time - 3 min
28 März 2024

Jeremy Smith

Co-Head of UK Equities

The Good, the Bad and the UK Stock Market

After an exceptional 2022 the UK stock market reverted to type, underperforming in 2023. With money continuing to disappear from the market, two potential catalysts for change have emerged.
Read time - 5 min
22 März 2024

Harry Waight

Portfolio Manager

Simon Haines

Portfolio Manager

Japan: we’re more convinced than ever

Investors are increasingly turning their attention to Japan. We spent two weeks there and met dozens of companies. But which businesses look best placed?
Watch time - 6 min
23 April 2024

Neeti Shah

ESG analyst

Rana Plaza 11 years on

2013’s disaster served as a wake-up call to the garment industry. How have factory conditions changed and how are we tackling related risks through engagement?
Read time - 3 min
23 April 2024

Sharon Vieten

Investment Grade credit analyst, Fixed Income

Sector spotlight: renewables making their mark on EU emissions

European Commission data for 2023 shows the most significant drop in the region’s annual emissions since the Emission Trading System was introduced in 2005.
Read time - 5 min
23 April 2024

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot – April 2024

Our fixed income team provide their weekly snapshot of market events.
Read time - 5 min
true
true

Wichtige informationen

Das hier zugrundeliegende Research und die Analysen sind von Columbia Threadneedle Investments für die eigenen Investmentaktivitäten erstellt worden. Aufgrund dieser sind möglicherweise bereits Entscheidungen noch vor dieser Publikation getroffen worden. Die Veröffentlichung zum jetzigen Zeitpunkt geschieht zufällig. Aus externen Quellen bezogene Informationen werden zwar als glaubwürdig angesehen, für ihren Wahrheitsgehalt und ihre Vollständigkeit kann jedoch keine Garantie übernommen werden. Alle enthaltenen Meinungsäußerungen entsprechen dem Stand zum Zeitpunkt der Veröffentlichung, können jedoch ohne Benachrichtigung geändert werden.

Das könnte Ihnen auch gefallen

Investmentansatz

Teamwork bildet eine wichtige Grundlage unseres Anlageprozesses, der so strukturiert ist, dass er die Ausarbeitung, Bewertung und Umsetzung fundierter und vielversprechender Anlageideen für unsere Portfolios erleichtert.

Fonds

Columbia Threadneedle Investments bietet eine umfangreiche Palette von Investmentfonds an, die eine Vielzahl von Anlagezielen abdeckt.

Anlagekapazitäten

Wir bieten eine breite Palette aktiv verwalteter Anlagestrategien und -lösungen, die globale, regionale und lokale Märkte und Anlageklassen abdecken.

Bitte bestätigen Sie einige Angaben zu Ihrer Person, um Ihr Präferenzzentrum zu besuchen

*Pflichtfelder

Etwas ist schief gelaufen. Bitte versuche es erneut

Vielen Dank. Sie können jetzt Ihr Präferenzzentrum besuchen, um auszuwählen, welche Einblicke Sie per E-Mail erhalten möchten.

Um zu sehen und zu aktualisieren, welche Erkenntnisse Sie von uns per E-Mail erhalten, besuchen Sie bitte Ihr Preference Center.