Is it time to buy Japan?
After 20 years of falling prices and a stagnant economy, is Japan finally kick-starting a new era of real economic growth? Massive quantitative easing (QE) measures were announced at the April Bank of Japan policy meeting, with the target of 2% inflation.
The Japanese stockmarket responded enthusiastically, rising around 10% in the week after the announcements were made, while the yen has fallen in value as a result of QE, making Japanese exports look more competitive overseas.
Despite many uncertainties, experts are generally bullish on prospects for Japanese growth – especially with "a large package of reforms and fiscal spending measures," due in June, according to Gary Dugan, chief investment officer for Asia at Coutts.
Where should UK investors look?
Adrian Lowcock, senior investment adviser at Hargreaves Lansdown, suggests GLG Japan Core Alpha. "This fund offers exposure to shares from the cheaper end of a cheap market – at current levels there could be an outstanding long-term opportunity," he says. It's also possible to buy a hedged version of the fund to protect against currency losses if the yen weakens.
Brian Dennehy, director of fundexpert.co.uk, believes that hedging is crucial as Japan enters "a currency war" with its regional competitors. "Buy a fund packed with exporter companies and hedged to protect stockmarket gains, such as Neptune Japan Opportunities," he recommends.
Fund managers tip the US for 2013
Global equity markets have started 2013 strongly, but a Fidelity survey of 13 leading fund groups shows most managers are tipping the US as star performer of the year.
- Jacob de Tusch-Lec, Artemis: "We believe in a self-sustaining US economic expansion. We're playing the US recovery via stocks catering to growth in domestic demand."
- Richard Lewis, Fidelity Worldwide: "The US looks set to perform very strongly this year. One key driver is the shale gas revolution, which is helping to re-industrialise the US."
- Gary Potter, F&C multi-manager: "One of our investment picks is the US. Quantitative easing and low interest rates, plus the energy revolution, manufacturing renaissance and a pick-up in housing, have provided the ingredients for GDP to accelerate into 2014."
If you share their optimism, funds to check out are Axa Framlington American Growth and Aberdeen's North American Income, which were the American winners in our latest fund and investment trust awards respectively.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).