Devaluation of yen aims to reduce deflation issue

OUTPERFORM::Economic improvement is predicted for Japan on the back of government strategies to end deflation by devaluing the yen to boost exports

By Crystal Hsu  /  Staff reporter, with CNA

Wed, Jan 16, 2013 - Page 14

Japan’s equities, the most unpopular among financial consultants in recent years, may stage a strong comeback this year as the newly installed Japanese government aims to end deflation and devalue Japanese yen to boost exports, Schroders Investment Management said yesterday.

“Japanese equities may outperform [counterparts in] developed markets this year,” Richard Coghlan, head fund manager at Shorders Hong Kong, told a media briefing in Taipei.

Predictions made by Coghlan in 2011 about the sluggish US recovery, European recession and global deleveraging, materialized in the past year.

He branded the Japanese equities forecast risky, but said he would press ahead with it.

The monetary easing policy, which needs support from Japan’s central bank, may boost Japanese companies’ competitiveness on the international stage, which is positive for their equities, Coghlan said.

That and a weakened yen will shore up the Japanese bourse, where foreign funds account for a sizable share of transactions, he said, adding that Japanese investors would recognize the cues and jump on board.

Coghlan predicted that the yen would trade below the important psychological 100 barrier against the greenback later this year, from 88.496 yesterday, while most other Asian currencies are under pressure to rise on the back of fund inflows.

The fund manager voiced concerns about China’s wealth management assets, sized at US$1.2 trillion, as they may burst due to a lack of transparency.

The risk, together with an increasingly polarized US political landscape and the return of the European debt crisis, may undo his predictions, Coghlan said.

He also predicted that the US real estate market would recover this year, value shares would outperform growth stocks and defensive equities would lose popularity.

Separately, President Capital Management Corp (統一投顧) said yesterday that the TAIEX is expected to challenge the 8,500 point level in the fourth quarter of this year as the economy at home and abroad is improving each quarter.

However, the index could test the technical resistance level of 6,900 points in the first quarter, which is traditionally a slow season for the global electronics business, President Capital Management chairman Park Li (黎方國) said at a separate investment seminar.

The benchmark weighted index closed at 7,765.02 points yesterday, up 0.85 percent from the closing level of 7,699.50 points at the end of last year.

Li said the local bourse could see the lowest point of this year in the first quarter, but added that the downtrend will provide good buying opportunities for investors as the market is expected to stage a rebound later in the year and could hit the 8,500 point mark in the fourth quarter.

Market conditions could improve after the first quarter as the economy in the US and China make comebacks, becoming more stable and boosting global demand, which could boost Taiwanese exports and pave the way for recovery, Li said.

The Directorate General of Budget, Accounting and Statistics has raised its projection for Taiwan’s GDP growth to 3.15 percent this year from an earlier estimate of 3.09 percent. The agency has forecast a 1.13 percent economic growth for last year.

“China concept stocks,” which have close business ties with China, could benefit from Beijing’s expected move to come up with further stimulus measures to lift domestic demand, Li said.