One year after Fukushima – fast recovery of corporate profits.
Comment from Ernst Glanzmann, fund manager of the JB Japan Stock Fund at Swiss & Global Asset Management :
It is remarkable how fast Japanese companies have recovered from the extraordinary events in March 2011, underlining their high flexibility and dynamics. The Fukushima disaster led to an overall economic loss of more than $200 billion, making it the costliest natural catastrophe on record. Nevertheless, in a very short time, most companies were able to recover production and corporate profits have largely returned to pre-earthquake levels. Some internationally-geared companies are reporting their best earnings ever. Going forward, favourable raw material costs and the fairly neutral yen should make a positive contribution to input costs and help companies to expand margins and profits.
Another noteworthy development is the increasing number of corporate actions. Share buybacks almost doubled last year and dividend payouts remained the same despite declining profits. Excess cash is increasingly distributed to shareholders. These are very supportive moves for stocks.
Q2 results will bring more visibility
Japan has seen a sharp reduction in valuations, reaching historic lows only a few weeks ago. Besides the Fukushima calamity, this reflected investors’ concerns about the impact of the European debt crisis and economic slowdown in China. Economic data and the sovereign debt developments in Europe no longer support such a pessimistic stance. Earnings have been temporarily distorted and come summer, the “dust” will have settled and a more reliable base to forecast profits will become visible. Investors are now more willing to appreciate the efficiency gains which many companies in Japan have worked hard to achieve over the last 12 months.
Differentiation between international and Japan-focused companies
Investors are well advised to differentiate between companies who are trapped in the lethargic home market and global players which do a large portion of their business overseas. Many global companies have learned to innovate and flexibly adapt their business strategy to tap the higher growth potential abroad. And they don’t have to go far: the archipelago is surrounded by growth markets. Already today, around 50% of exports go to Asia.
In that sense it is also important to note that GDP doesn’t necessarily reflect the health and growth opportunities of individual companies. As a nation Japan may suffer from an ageing population and high government debt, but on a company level the outlook for many Japanese firms is very positive. Indeed, Japan offers exceptional value for investors willing to actively look for outstanding companies.
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