Investors will be hoping the handover from prime minister Shinzo Abe to Yoshihide Suga will be as successful for Japan as when Tim Cook assumed the key leadership role at Apple.
Abe, who announced plans to step down last month, formally handed power to Suga in September, with the cabinet secretary making his first press conference as the leader of Japan on 15 September.
The Topix had dropped on 28 August when Abe announced he would be stepping down. This decision, which was actually Abe’s second stint in the role, marked the end of the longest-serving Japanese Prime Minister in the post-war era.
In emailed comments to Citywire Selector, Tokyo-based Kaye said Suga’s presence has gone unnoticed as he was actually a key element of Abe’s huge stimulus efforts, known colloquially as ‘Abenomics’.
‘He was the architect of the complex and unsung part of ‘Abenomics’ which is the deregulation of the tapestry of protection which has, say many, held back Japan’s modernisation,’ said Kaye.
‘Suga will have one focus, the economy. How significant is a leader’s first press interview I do not know – but in Abe’s, he mentioned the constitution; and in Suga’s, on 15 September, he mentioned deregulation. The trends which investors in Japan have welcomed over the eight years of Abe’s premiership should therefore be continued, or accelerated, under Suga.’
Kaye – who made the likeness between Abe and Steve Jobs – said there will be hope that Japan can continue to develop and evolve without having a single man as a driving force.
‘The need for more efficient labour laws, greater female participation in the economy, new business models leveraging the internet (Suga may create a Digital Agency), clearer lifestyle focus and improved governance is deep-seated as Japan’s population ages, and as Japan’s investors return to their own stock market demanding clearer returns.’
Irrelevance of the leader
Echoing the idea that the ideas can outlive the man is Jonathan Dobson, who runs the CC Japan Alpha fund. The Citywire AA-rated manager told Citywire Selector: ‘Our view on this is simple. Firstly, we believe that Mr Abe’s legacy policies will long outlive him.
‘To name but a few, the Stewardship Code, the Corporate Governance Code, the rejigging of the GPIF to encourage its appointed fund managers to focus on ‘proper’ investment parameters (notably ROE), and the overhauling of duty free and visa rules which launched a tourist boom in Japan, are policies that should survive long after Abe is gone.’
Dobson said it is almost ‘irrelevant’ who the prime minister when it comes to understanding companies with genuine growth potential. ‘Between 1st January 1995 and Abe’s election on 16 December 2012 there were eleven Japanese prime ministers, many of them absolutely devoid of talent, serving through some of the bleakest economic conditions Japan has ever faced.
‘Despite this, Fast Retailing (Uniqlo) saw its share price rise more than 1,650%, whilst Keyence’s market value grew more than 3.5x over those 17 years.’
But, what does it mean for asset classes? Kaye, who has focused on a ‘Changing Japan’ theme in his funds, believes many far-reaching changes are just starting to feed through. He pointed to Warren Buffett’s announcement of positions in Mitsubishi, Mitsui, Itochu, Marubeni and Sumitomo as a ringing endorsement.
Takashi Maruyama, head of equities Japan at Fidelity International, said the market has changed immensely under Abenomics and it is worth comparing and contrasting the winners and losers with their US counterparts.
‘Although both Japan and the US have seen the weight increase of communications services sectors and the weight decrease of financials/real estate sectors, there is a big difference in the weight change of IT between US and Japan.
‘The IT sector weight in the US has increased dramatically on the back of a significant drop in the weight of energy and consumer staples,’ he said.
Maruyama added that many software and services – or Saas – companies had driven the US market, which had not yet fed through in Japan. ‘But I believe that as digital transformation is set to further accelerate, products and services that are used to enhance operational efficiency and productivity in both the private and public sectors, will have even bigger potential to grow.’
Going for growth in a digital age
Growth is a watchword for Suga, according to Naoya Oshikubo, senior economist at SuMi Trust. Speaking to Citywire Selector, he said: ‘Suga is likely to bring some changes, including a vigorous growth strategy for Japan.
‘The new prime minster is expected to lay out ambitious goals, including breaking down parts of Japan’s overly bureaucratic administration and promoting regulatory reform.
‘In addition, Suga could stick the knife into vested interests, such as the mobile telecommunication industry where major three telecom companies have most of market share and the healthcare industry, where online health and medical consultations have been restricted.’
Echoing Marayuma’s point, Oshikubo said Suga would seek to ‘turbocharge’ Japan’s digitalisation, which could come through in terms of policies around mobile phone payments, online healthcare, online education and regional bank reorganisations.
However, Oshibuko is aware that Suga has a limited tenure at this stage, as he has assumed the role without being elected. ‘The new PM inherits Shinzo Abe’s parliamentary term and as this expires in September 2021 he may dissolve the House of Representatives soon and call an election to pave the way for a long-term administration.
‘In this case, he is likely to announce expansionary fiscal policies as election pledges which may include an income compensation policy for people who have been affected by Covid-19. Japanese equities will stay firm on the back of this expectation for the time being.’