Investment may flourish again in Japan as value-hunters return to a market that is slowly rebounding after the March earthquake, but only if the country can break the political impasse that is blocking policies to deal with its nuclear disaster and massive public debt.
Investors are eyeing companies with global exposure that have become cheap after a post-quake market rout and proved resilient despite damage to their supply chains and production capacity, which are now coming back online faster than even the most bullish expectations.
Overseas players have pumped 5.0 trillion yen ($62 billion) into Japanese stocks in a record-long buying streak since November and a record 893 billion yen in the week after the March 11 quake, betting the current recession will be followed by a sharp recovery.
At the Reuters Rebuilding Japan Summit on June 20-22, leading corporate executives, investors and policymakers will discuss how to tackle the litany of challenges facing the country and achieve a sustained recovery.
“Japan stocks are very cheap. Even though there’s a lot of uncertainty going forward, we see indications that manufacturing is coming back to normal and we may see a ‘V’ shape recovery,” said Jonathan Allum, equity strategist at Mizuho International in London.
Still, with the Federal Reserve’s $600 billion bond buying program ending this month, deepening euro zone debt woes and further tightening in fast-growing markets, foreigners’ buying has waned recently, underscoring the urgency with which Japan needs to address policy challenges to make itself attractive again.
Manufacturers face a grave risk of massive power shortages as nuclear reactors are gradually shut under intense public pressure after meltdowns at the quake-hit Fukushima nuclear plant, and as Japan’s divided lawmakers struggle to overhaul energy policies. More importantly, Japan’s biggest rebuilding effort since the post World War Two period may be seriously hampered as politicians wrangle over who should foot the bill for the worst nuclear disaster in 25 years. “Until the equity market has got some sort of basic idea that this is the bill, this is the way it’s going to be shared, and these are the implications for individual companies, it’s very difficult for anyone to place any aggressive bets,” said Alexander Kinmont, Japan Strategist at Morgan Stanley MUFG Securities.
“That’s particularly true for financial stocks, which are, together with utilities, in the firing line in terms of private sector burden-sharing. It’s just very difficult for the market to achieve any sort of level of basic confidence that there won’t be any unpredictable surprises,” Kinmont said.
