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THE WEEK OF JUNE 24, 2013
MANAGING YOUR MONEY
personalWEALTH
Wealth trends
Profit challenge for wealth
management firms
Hedge funds
Commodity traders mostly in
the red in gloomy 1H2013
Collectibles
For China’s fine-wine buyers,
fakes are more worrying
than tariffs
Japan to
rise again
Despite the recent slump, stocks in the
Land of the Rising Sun will surge again
and resume their uptrend, predicts
Nikko’s Takashi Maruyama. He is
positive on carmakers, banks,
real estate companies and
high-dividend-yielding counters.
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PW4 • THEEDGE SINGAPORE | JUNE 24, 2013
PERSONAL WEALTH
COVERSTORY
At below 14 times forward PER, valuations of Japanese
equities have moved to an attractive level after the
recent correction, says Maruyama
PICTURES: BLOOMBERG
Japan to rise again
Despite the recent slump, stocks in the Land of the Rising Sun will surge again and resume their uptrend, predicts Nikko’s
Takashi Maruyama. He is positive on carmakers, banks, real estate companies and high-dividend-yielding counters.
| BY KELVIN TAN |
Seasoned angler Takashi
Maruyama, who is fond of
fishing in Japan’s fast-flowing
rivers, knows the tricks
to a good catch are finding
the right spots, choosing the correct
lure, having the endurance to play
the waiting game and knowing when
to reel the catch in.
Good fishing, like successful investing,
requires discipline and patience
even during difficult weather
conditions, according to Maruyama,
who is head of equity fund management
at Nikko Asset Management.
That is why the recent turbulence
that threatens to derail the equity
upswing in Japan doesn’t seem to
unnerve him.
Japanese stocks — as measured by
the Nikkei 225 Index — have slumped
more than 15% from their 5½-year
peak on May 23 on concerns that
global central banks such as the US
Federal Reserve may ease their monetary
stimulus in the near future. The
recent strength in the yen has also increased
selling pressure on stocks in
Japan. The ongoing Japanese stock
market correction, however, is unavoidable,
says the 48-year-old, Tokyo-based
fund manager in an interview
with Personal Wealth when he
was in town recently.
The surge in the prices of Japanese
equities, which skyrocketed
more than 50% in the six months
prior to the recent downturn, was
simply too fast, he observes. “Six
months before May 23, Japanese
equities generated gains of around
70%. On an annualised basis, that
was 140% and that was too much.
We didn’t expect that type of speed
in the rally.”
As Maruyama sees it, the chilling
winds sweeping across the Japanese
stock market is transitional and unlikely
to develop into a tempest. He
says the market needs a short-term
correction before it can gradually
move higher on fundamental reasons
such as better-than-expected
corporate earnings, improving economic
growth and business activities,
and confidence-boosting structural
reforms advocated by Japan
Prime Minister Shinzo Abe. “After
this correction, I think Japanese equities
will go up again. But the pace
of the rally will be slower than the
previous one,” he predicts.
Maruyama adds that with the recent
slump, valuations of Japanese
equities are now at an attractive level
of below 14 times forward price-toearnings
ratio (PER) compared with
the historical average PER for the Japan
Topix Index of around 17 times.
At current prices, Japanese stocks
look cheap relative to their historical
valuations, he points out.
Maruyama says investment sentiment in
Japan could improve in June if Abe’s LDP
wins the majority in the Upper House
election
But cheap valuations will not
drive up stock prices. “For earnings
of Japanese companies, the currency
rate is extremely important. Due
to Abenomics, the correction of the
strong yen took place. On the back
of that, we will see positive surprises
in earnings in the future. That
will be the main driver for Japanese
equities.”
Abenomics refers to the aggressive,
pro-growth reflationary economic policies
advocated by Abe, who has vowed
to end Japan’s prolonged period of deflation
by setting an inflation target of
2% within two years and a nominal
GDP growth target of 3%.
Since becoming Japan’s prime minister
for the second time in December,
Abe has introduced bold stimulus
policies that have sent the yen
plunging in value against the US dollar.
Despite its recent strength — the
yen has rebounded from its low of
103.5 to the US dollar on May 22 to
around 95 currently — it is still more
than 15% lower against the greenback
since early December.
“The intention of Abenomics
is to correct the strong yen,” says
Maruyama, who reckons it will weaken
to the 99 to 100 level when the
market turbulence subsides.
Bullish on autos, banks and
real estate
A weakening yen will boost the competitiveness
of many exporting Japanese
companies, according to the
Nikko fund manager.
“As long as the exporters have
good business because of the weaker
yen, sentiment and business activities
in Japan will be boosted,” says
Maruyama. He is bullish on Japanese
carmakers, automobile-related equipment
makers and select consumer
electronics manufacturers, but will
not name individual stocks.
The fund house’s Nikko Shenton
Japan Fund, a Japanese equity unit
trust that is sold to retail investors in
Singapore, has Toyota Motor Corp,
Honda Motor Co and Mazda Motor
Reproduced by permission of The Edge Publishing Pte Ltd., Copyright © 2013 The Edge Publishing Pte Ltd. All Rights Reserved Worldwide.
SAMUEL ISAAC CHUA/THE EDGE SINGAPORE
Corp among its top 10 holdings.
At current prices, Japanese banks
are also looking like good buys, says
Maruyama. “It is a very traditional
way of thinking, but when the Japanese
economy turns for the better,
Japanese banks will do very well. In
terms of valuations, Japanese banks
look attractive,” Maruyama says. The
country’s strong economic growth of
an annualised 4.1% in 1Q surprised
many economists.
With Japan, the world’s third largest
economy, on the mend, Maruyama
reckons bank lending activities
will pick up and boost the interest
margins of its banks. A better economic
outlook for the country will
push companies into an expansionary
mode and capital expenditure is
likely to go up. “Many cash-rich Japanese
companies will finance capital
expenditure with their own cash. But
eventually, they will have to borrow
money from the banks,” he tells Personal
Wealth. Bank lending in Japan
was up 2.1% in April compared with
the same month last year.
Banks and financial companies,
which are among the top 10 holdings
of the Nikko Shenton Japan Fund, include
Mitsubishi UFJ Financial Group,
Mizuho Financial Group and Nomura
Holdings. The fund also holds a
large amount of shares in real estate
companies such as Mitsui Fudosan
Co and Mitsubishi Estate Co.

is likely to rebound towards the latter part (JGB) are concerned, the recent spike in although loans to small and medium-sized
CONTINUES ON PW8
THEEDGE SINGAPORE | JUNE 24, 2013 • PW5
As Maruyama sees it, Japanese rate restructuring is over and they
PERSONAL tional WEALTH income and set up regional
real estate companies will be the can increase workers’ salaries and
economic zones. He is expected to
main beneficiaries of the Bank of Japan’s
many companies have done that.
announce more structural reforms
aggressive reflationary policies. That means they can afford to in-
soon, according to Maruyama. “The
In April,
Why
the central bank
are
launched a crease
Japanese
the dividends to their shareholders.bour
law reforms because of the tim-
stocks fluctuating
recent
wildly?
Abe speech didn’t include la-
massive bond-buying programme in a
bid to stimulate the Japanese economy At the same time, the firms’ positive
ing, with the Upper House election
and take it out of decades of stagnation.
earnings growth will boost divi-
just around the corner.”
Quantitative easing moves announced
dend payouts, he says. In addition,
The fund manager reckons dereg-
Over by BOJ then the included past weeks, plans there Japanese has companies of the year. are Lower “very commodity cash
yields should not be seen as companies ulation have remained of Japan’s sluggish. strict labour Unlike laws
to buy ¥7.5 trillion been ($99.1 extreme billion) volatility of in rich”. Japanese
equities and double and the many balance inves-
sheets. ers and They we have have to seen think a sharp
flect heightened speculative acdled
with huge “Historically, amounts the of non-performing
labour laws Ja-
“They prices hold lots are of positive cash in for their consum-
the start of a crisis. It may re-
in the 1990s will when be good Japanese for its banks corporate were sad-
sector.
bonds each month
monetary base tors from have ¥138 raised trillion the at question about of how rebound they are in going US consumer to spend confidence
During recently. deflationary Most European
relatively illiquid market. Most lending and companies are in a more cannot resilient let go of position their emtivity
by leveraged players in a loans, they pan now have have been the capital very strict. to expand Japanese
end-2012 to ¥270 whether trillion we by end-2014. have seen the that best money.
Besides from purchasing the Nikkei. Japanese government
bonds The volatility across the in maturity the market spec-
started flation with is expected fiscal tightening, in Japan in and the the lat-
yield owing to the increased The housing Even market though has the also companies shown signs would
times, cash governments is king.” However, are relaxing in-
their
of the jump in JGBs is in real against external ployees shocks. with remuneration packages.
trum, the BOJ rise will in Japanese also buy government-bond commercial near yields future est and news it will is be that a problem, the European
inflation expectations. of recovery. like Housing to pay starts the rose workers 7% y-o-y to leave, in
papers, and general corporate profit-taking bonds, exchangetradeticipation
funds of and retail Japanese investors. real es-
Nikko Asset Spain Management two more years recent-
to bring
its monetary base and raise the creases. The have higher to continue demand for to property hire them has even
led by the high Maruyama par-
Union says. just granted France and
With the BOJ trying to double March, the it seventh cannot consecutive be done. The month companies of intate
investment The global trusts bond as market part of has its been ly rolled going out their Japan fiscal deficits Dividend in Equity
There Fund, EU giving rules. retail investors in | BY RAYMOND CHAN | argue that Japanese yields will ues, particularly he explains.
Tokyo.
line with
inflation rate to 2%, we could started to translate though into their gains skills in are property not needed,” val-
asset through buying a programme.
correction in recent weeks.
are “The concerns BOJ will bond be active yields and will con-continutinue move to higher be active and in the the rally future. we have anese seen in companies’ to slow higher its aggressive dividend stimuage
banks to lend and re-flate BOJ governor the Haruhiko Upper House, Kuroda the upside could for lead Jap-
Singapore to an opportunity Worries the to Fed tap may Jap-
begin
need to rise in order to encour-
It is possible Should that the Abe efforts win the by Abe majority and of
That’s risk why markets I am will positive be derailed. on Japanese
should real estate put the stocks fall in bond based prices on a in its invest prop-
in about believe 50 the dividend money-printing stocks, presses will run Yields are expected to be less volatile in the bubble, but yama we should says. note Abenomics that ownership will take of at
However, payouts. we The lus unit efforts trust, also which sent bond will yields higher. We the economy.
to the bursting anese of the stocks Japanese will be bond-market huge, Maru-
reflationary er perspective. story,” US says bond the yields Nikko have aims only to re-distributcovered of equity to levels fund last management,
seen early this year 5% to and 7%. reason The distribution central bankers will be in developed econotune
its buying operations. It plans to have countries that pact, experienced and if the country’s debt turmoil. economic In
longer than annual most payouts investors of suspect. The main coming months as the BOJ continues to fine-
this market least in Japan two is years different to have from a other full im-
head
who are points still well out that below real their estate 2011 prices
in Japan We believe began Treasury to inch higher yields may re-
have “The lim-
high-dividend-yielding short-circuit a deflationary strat-
cycle and, in do-
smaller amounts each time to allow dealers eigners, whereas more people in the US will Treasury have confidence market, in
highs. done on a monthly mies are basis. pursuing quantitative easing is to more frequent operations and to purchase Japan, less growth than 10% continues of debt is to held gain by traction, forcentlyited
room “Actual to rise real in estate the shorter prices in term. egy The will US work ing for so, Japan prevent over their long economies from falling to manage their inventories better.
for example, the the prime figure minister is more and than his 50%. policies, In
Japan government’s will appreciate. borrowing It is already requirements term. continue
place. to decline After and the recent new bond cor-issuance will increase,” is flation. asserts This Maruyama. will not happen unless the ve-
higher as the economy gathers momentum. sion — the BOJ Going is keeping forward, nominal more rates internation-
low
The into dividend recession. yield And in Japan they need to create in-
Over time, the JGB yields should move essence, Japan Maruyama is undertaking points financial out. repres-
taking
rection, falling it short is better of Fed for bond us to purchases. re-enteever,
real estate as we enter stocks.” into next year, the rial outlook for the pick new up. fund, We it are will yet invest to see any The such newly recovery. launched Nikko the Japan largest Dividend percentage Equity Fund gain will since invest July in Japanese 2009. telecom-
so that real tail rates investors are negative. will re-enter Over time, the real Japa-
According Howlocity
to the of marketing money their mate-
economies begins to Bank lending in Japan rose 2% y-o-y in April, but is also allowing investors the as inflation well as rate Japanese to rise re-
for bonds may not be rosy as their in yields stocks such Without as convenience-store
a pick-up in the velocity munication of money, firm NTT DoCoMo, Recent which reports currently have has shown a dividend that banks yield of have more than government 4% nese borrowing equity costs market are and reduced a sustained and
Dividend should eventually plays match nominal GDP chain growth, Lawsons inflation Inc, will telecommunications
growth company As NTT far as Docomo Japanese Inc government investors do bonds not expect real estate much and from natural (LDP) resources win the transactions, majority of of votes nominal at will GDP. occur, says the sanguine fund
be hard to come by.
increased lending for mergers and acquisitions, public debt gradual will be uptrend lowered for as Japanese a percentage stocks
With which many is Japanese 3% to 4% companies for the US. having
is undergone likely to corporate rebound restructuring
towards the latter and part camera (JGB) maker are Canon. concerned, the Japanese recent spike consumer in although electronics loans com-to small the Upper and House medium-sized election, says Maru-
manager, who is CONTINUES currently ON fishing
Global
PW8
since the 2008 global financial crisis,
they can now pay better salaries to
their employees as well as distribute
higher dividends to shareholders, according
As Maruyama to Maruyama. sees it, Japanese
real After estate the companies financial crisis, will be many the
Japanese main beneficiaries companies of the that Bank were of undergoinpan’s
aggressive restructuring reflationary could policies. not
Ja-
raise In April, dividend the central payouts bank as launched employee a
salaries massive bond-buying were being squeezed programme then. in a
“In bid to Japan, stimulate employees the Japanese are sometimes economy
more and take important it out of than decades shareholders,” of stagnation.
Maruyama. Quantitative “Right easing now, moves corpo-
an-
says
nounced by BOJ then included plans
to buy ¥7.5 trillion ($99.1 billion) of
bonds each month and double the
monetary base from ¥138 trillion at
Lawsons, which currently has a
dividend yield of 3%, is an example
of a company that generates high revenues
with minimal capital investments.
restructuring NTT Docomo is over — with and a they cur-
rate
can rent increase dividend workers’ yield of 4.21% salaries — and has
many a resilient companies business have that can done absorb that.
That any economic means they shock can in afford the global to increase
landscape. the dividends Canon, which to their is shareholders.ing
at a forward PER of less than
trad-
12 At times, the same has a time, high the level firms’ of global positive
competitiveness.
earnings growth will boost dividend
“Valuations payouts, he are says. low In and addition, many
Japanese companies are “very cash
rich”. “They hold lots of cash in their
balance sheets. They have to think
about how they are going to spend
panies as they believe they have lost
their competiveness. These are opportunities
for long-term investors like
us to pick up companies with good
technological and product competitiveness,”
says Maruyama.
Near-term impetus
Although the Japanese stock market
has lost some of its lustre of late, investment
sentiment could change for
the better next month should Abe
and his Liberal Democratic Party
yama. “We expect LDP to win the
majority at the Upper House election
in July. With LDP having control
of the Lower and Upper houses,
it will push through structural
reforms such as changes to Japan’s
strict labour laws.”
After implementing big government
spending and aggressive monetarypolicy
easing over the past months,
Abe recently unveiled his “third arrow”
to achieve sustainable economic
growth with plans to boost the na-
for the right stocks to ride the market
uptrend.
As for river fishing, Maruyama,
a father of three, says his hobby has
tional taken a income back seat and of set late up owing regional to
economic family commitments. zones. He is “It expected is difficult to
announce for me and more my kids structural to fish in reforms a real
soon, river. A according quick solution to Maruyama. will be a “The fish
recent pond. The Abe fish speech in the didn’t ponds include are very labour
hungry law and reforms it is very because easy of to the catch,” timing,
he laughs. with the Unfortunately, Upper House such election quick
just fixes around aren’t easily the corner.” available in the investing
E
The fund world. manager reckons deregulation
of Japan’s strict labour laws
will be good for its corporate sector.
“Historically, the labour laws in Japan
have been very strict. Japanese
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