Japanese dividend growth was up 29% in 2013 according to the latest Henderson Global Dividend Index (HGDI) which tracks dividends paid by the world’s listed companies. Japan’s 2013 dividend total was $46.4bn, equivalent to 5.1% of global dividends, but less than half of the UK’s share, despite Japan’s larger economy. Japan’s dividends increased by a respectable 28.5% between 2009 and 2013, which was an average growth rate of 6.5%.
According to Pictet Asset Management senior investment manager Sam Perry, Japanese companies are currently sitting on a cash pile worth 30% of Japan’s GDP which they are beginning to put to work in the economy.
“The corporate sector has a huge amount of cash to deploy,” he says. “Companies are paying dividends and it is cheaper than other markets. Why wouldn’t you [invest in Japan]?”
Nikko AM’s Vail believes part of the reason Abenomics has been a success is the fact it has captured the people’s imagination and restored a sense of faith. After a decade which included the devastating tsunami in 2011 and its effect on nuclear power supply and South Korea’s dominance in the consumer electronics and automobile industries, both industrial and consumer confidence is now on the up.
He says: “Part of the reason Abenomics has been successful is the people are decided, particularly after the tsunami and the crisis. Samsung and Hyundai had eaten market share away from Japan for the last decade and some other geopolitical elements encouraged them. Abe offered that change and the people are sticking with him.”
Pictet’s Perry also believes Japan has discovered – or rediscovered – its ‘Animal Spirits’ in a similar way that the US did after the Great Depression in 1929. He does not see Abe as the catalyst for this however, arguing Japan began its current trajectory out of deflation in 2012, way before Abenomics and the appointment of Haruhiko Kuroda to head the BoJ and his mandate to generate a 2% target inflation rate through QE.
He says: “The recovery began in 2012 at which point you could see the end of deflation when corporates began to draw down and take on debt to facilitate investment. It was a stroke of luck that Abe came in as inflation came back because his predecessors had put the fiscal budget in place.”
A sentiment-driven blip
But in order for this growth to have a lasting impact on the economy, experts believe the profits resulting from the currency’s fall when repatriated will have to feed through to fund an increase in full-time employment, higher base wages and renewed capital investment and government tax receipts.
As T Rowe Price portfolio specialist, global equity, Laurence Taylor says: “While macroeconomic fundamentals have been an important catalyst for earnings growth, corporate Japan’s new found profitability must catalyse an upward cycle of wage growth for the equity market story to fully realise its potential.”
In addition, the durability of Japan’s rebound has been brought into question as it has underperformed global markets as investors have felt unnerved by the decline in emerging market currencies, such as the Argentine peso, which triggered a flight to safer currencies, including the yen.
But as Chris Taylor, manager of the Neptune Japan Opportunities fund points out, this is merely a “sentiment-driven blip” in the markets. The fundamental case for equities in general and Japan in particular remain strong, he believes. “Having restructured dramatically since 2007, [Japanese companies’] potential for profit growth remains underappreciated and undervalued by investors. These developments, when accompanied by the ‘three arrow’ policies, should see the Japanese market record strong gains over the coming years.”
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