Japan's banks can drive a stockmarket recovery in 2010 but concerns over equity finance must be resolved first says Tatsuhiko Takura, head of Japanese equity at Tokio Marine Asset Management.
The Topix/S&P 500 ratio has hit a ten year low, Takura pointed out, below its lowest point of the so-called 'lost decade', reached in April 2003. 'The earnings environment for banks is better than it was in 2003, yet bank stocks have been sold to the point that the relative index is at 2003 levels,' he said.
'Equity financing, including those carried out by banks, is expected to reach JPY5 trillion by the end of this year, which is six times the level seen in 2008. We forecast the trend will continue into 2010,' he said.
A series of new share offerings by poorly performing companies led to additional stocks being issued without companies paying due attention to capital costs, he said. Investors had been disappointed and the resulting distrust had an impact on the domestic equity market.
Nevertheless, Takura believes the outlook for the Japanese market is positive. 'It may take time to solve these issues, but as corporate earnings improve, the market will stabilise and the current situation of the Japanese market lagging behind other major markets will be resolved gradually.'
The risk of stockmarket corrections in the US and Europe, along with the possibility of further appreciation by the yen, are potential headwinds for Japanese equities. Assuming the world economy recovers during 2010, however, within the Japan equity universe Takura and his colleagues will focus in particular on the automotive and auto parts sector, which they expect to benefit from a boom in China and recovering demand in the US; and the electronics sector, where demand for PCs and semiconductors will drive growth.
Tokio Marine, which runs around $50 billion, has been working to build its presence in Europe during 2009. It has also been picking up some significant third party mandates: earlier this year we reported the Japanese firm had been selected by Nordea to run the Nordea 1 Far Eastern Equity fund for the Nordic investment group.
