Anxious funds shun Japan shares

Concerns about the Japanese economy have prompted many US and European asset managers to stop buying Japanese equities. According to the latest figures from Natexis Asset Management, the proportion of fund managers in a ‘buy’ phase on Japanese stocks has fallen 10 per cent since September, to 32 per cent of 182 interviewees (see figure 1). This change of strategy goes hand-in-hand with anxiety about the Japanese economy – an unsurprising congruence given, as Philippe Waechter, director of economic studies at Natexis, notes, “that the market is principally made by foreign investors”. Natexis’ World Multimanagement Indicator shows a drop from 56 to 36 per cent in the proportion of fund managers optimistic about Japan’s economic outlook. “In Japan, the state of acceleration of the economic growth has slowed,” says Mr Waechter, adding that it “remains susceptible to moderating economic growth”. A neutral viewpoint is up from 35 to 45 per cent, reflecting, the report says, “puzzlement” about the region. This comes as the popularity of the rest of Asia is rising, the outlook on Europe remains upbeat and emerging markets see growing optimism, but North American equities take a hit. Nearly three quarters (71 per cent) of managers interviewed are optimistic on Asia ex-Japan, up from 61 per cent in September, and 48 per cent described themselves as buyers of equities in the region. Optimism on Europe has slipped 2 per cent to 59 per cent but, with 53 per cent of managers describing themselves as buyers, it is still the most popular. A rise in the proportion of optimistic managers, from 49 to 60 per cent, reflects growing confidence in emerging markets. In the US, however, perception of activity in the market “continues to deteriorate, reflecting the anticipation of a weakening economy”. Only 20 per cent of the managers interviewed are optimistic about the US, down from 24 per cent in September, and compared with 30 per cent who are pessimistic, and 50 who are neutral. Alongside economic growth in Europe and decline in the US, Mr Waechter notes diverging orientations of monetary policy – “more conciliating in the US, and more restrictive in Europe”. These, he says, have prompted “an absence of tension in long term interest rates”. Interviewees are alive to the dangers of high interest rates, with 72 per cent convinced that a rise in rates would have a negative impact on global growth. However, three quarters are confident that central banks have an appropriate perception of current inflationary risks. Correspondingly, the predominant view on long term European rates is neutral (48 per cent), with 36 per cent of interviewees (down from 52 per cent) expecting a rise. Across the pond, there is even less fear of a “rise” scenario, with 37 per cent of managers interviewed neutral on US long-term rates, and only 24 per cent thinking they would go up (see figure 2).