Euro am Sonntag fund tip: The man behind Abe: Where Japan’s new head of government scores everywhere | message
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by Thomas Strohm, Euro am Sonntag
L.Ultimately, the succession was quickly clarified. After 65-year-old Shinzo Abe unexpectedly announced his resignation as Japanese prime minister for health reasons at the end of August, Yoshihide Suga was quickly acted as the new head of government. Last Monday, the 71-year-old was named chairman of the Liberal Democratic Party (LDP). Because of the majority of the LDP in the relevant lower house of parliament, the election for prime minister on September 16 was only a matter of form.
Suga has been Abe’s right-hand man for almost eight years as Cabinet Secretary since the late 2012 election. He now wants to continue its policy. For some, this promises welcome continuity. Other observers point out that new impulses from Suga are hardly to be expected at first.
The continuation of Abenomics even without Shinzo Abe should not be avoided because of the economic slump as a result of the corona pandemic. The economic policy named after Abe relies on the mixture of an extremely relaxed one Monetary policy the central bank, a debt-financed fiscal policy of the state and deregulation.
Mixed Abenomics record
The high hopes associated with Abenomics at the beginning have hardly been fulfilled. The balance sheet is mixed at best, says DZ bank economist Wolf Rütger Teuscher. Economic growth could only be accelerated temporarily. Sustainable structural reforms were disappointingly neglected. Abe’s policy has brought the country out of permanent deflation. However, the inflation target of two percent remained a long way off.
Luke Barrs of Goldman Sachs Asset Management sees the reforms to corporate governance as a major success for Abe, which would have led to more independence of the board of directors, better strategic decisions and higher returns for shareholders in the form of dividends and share buybacks.
Investment strategist John Vail from Nikko Asset Management also sees this as a reason for US investor legend Warren Buffett’s purchases on the Japanese stock market. In the past few months, his holding company Berkshire Hathaway has invested in five large trading houses – Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo – which are primarily active in the energy and raw materials sector. “Buffett is demonstrating his confidence in the entrepreneurial skills of the selected companies, but also in Japanese accounting and corporate governance in general,” said Vail.
Hope for the Buffett boost
Buffett also remains true to his maxim of buying value stocks at a time when they are still in little demand. “The investment should inspire other investors and make them wonder if there are other sectors in Japan to be targeted,” says Vail. After all, the characterization “unpopular value stocks” fits much of the Japanese stock market.
As part of corporate governance efforts, it is a sign of confidence in the future if companies do not cut their dividends. This strategy has paid off for the five trading houses. “They kept the dividend at record levels, proving that they have confidence in the company and care about shareholders,” Vail said. With that aim, and in an effort to maintain Buffett’s continued favor, its dividends should remain high.
The Buffett boost will not solve all problems, but it should mark a real turning point for Japanese stocks, says Vail: “Nobody can make grumpy judgments now without the answer being: Buffett disagrees!”
Vail expects the new Prime Minister Suga to be more likely than Abe to advance certain reforms. Promoting the digitalization the economy and the modernization of regional banks should be part of it, but also increased price competition in telecommunications services. Dan Carter of Jupiter Asset Management recalls the critical remarks by Suga about the high prices in the telecommunications sector.
First manage the crisis
The next regular elections to the House of Commons are scheduled for October 2021. However, there is now much speculation about an early polling. In this case, too, strategist Barrs from Goldman Sachs expects the LDP to be successful and continue to be the government. This is also due to the rather weak opposition in the country.
At Nikko Asset Management, however, early elections in the next few months are unlikely because voters would not approve of this during the Corona crisis. If Suga manages the crisis successfully – especially in the months leading up to the decision on the Olympic Games and Paralympic Games in Tokyo – according to Vail, he is likely to move from being a transitional candidate to becoming the dominant figure in the general election in October next year.
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Image sources: Rawpixel / Shutterstock.com, CC-BY 4.0 / Government of Japan