Prime Minister Shinzo Abe received a resounding vote of confidence from the Japanese people over the weekend and his snap election victory cheered investors both locally and further afield.
Following the news that Abe easily maintained his grip on power and strengthened his mandate to continue economic reform and take a tough line on North Korea, Japanese shares rose on Monday.
The Nikkei 225 climbed 1.1% to 21,696 meaning it has now seen two straight weeks of consecutive daily gains.
Prime Minister Shinzo Abe’s policies received a resounding vote of confidence from the Japanese people over the weekend.
The Tokyo Stock Price Index (TOPIX), another barometer for Japanese companies, was also in green, rising 0.84% to 1745.
It is unlikely we will see any new tricks from Abe and company to stimulate the economy given the reign in power he has already had. However the result is a signal of continuity and stability for Japan and East Asia, which markets tend to respond well too.
Abe has established his position as a safe driver at the wheel and while not much will change, the result does give his already-stated economic plan fresh authority and momentum.
‘In many ways, this election campaign was devoid of substantive policy discussions, having being called at short notice,’ noted Michael Stanes, investment director at Heartwood Investment Management.
‘New Hope, a newly established party to emerge as the main opposition, offered the ’12 zeros’. A few of its more outlandish proposals included plans to ban packed commuter trains; ban tree pollen that causes hay fever; and ban passive smoking. Noble ambitions for some, but not a recipe for addressing the economic challenges facing Japan over the next decade.’
While Stanes said ‘he is not under any illusions that the macro story will change’ following the election, he believes that ‘entrepreneurial spirit in Japan is not dead’ and there are a number of opportunities to exploit for investors, independent of the wider economy.
‘Abe’s substantial victory is reassuring for markets as economic reforms begun on his watch should continue for the foreseeable future,’ said Jake Robbins, manager of the Premier Global Alpha Growth Fund.
Things have been looking up for Japanese shares over recent times as corporate governance reforms aimed at prioritising shareholders’ interests come into force.
‘Japanese company earnings have recovered strongly with an improving global economy, but there have also been substantial improvements in corporate governance over the past few years that have made companies far more shareholder friendly than they have been historically.’
As well as giving ‘Abenomics’ a fresh stamp of approval, the election also means no disruption to the burgeoning corporate governance reforms that are underway in the country, which is good news for shareholders.
‘Recent examples such as Kobe Steel and Nissan aside, most companies now realise that a focus on profitability and shareholder returns is necessary to create the conditions for economic growth and an end to deflation,’ noted Robbins.
‘Meanwhile, in contrast to many western markets that are now trading at relatively high valuations, the Japanese stock market remains attractively valued with strong growth prospects.’
‘Further improvements in raising the profitability of Japanese industries would potentially create very attractive returns for investors,’ Robbins added. ‘A stable and business friendly political back-drop should be just the thing to further the gains that we have seen in Japanese equities so far this year.’
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