Abe’s election success to boost Japanese equities

Japanese votersFund managers are predicting good returns on Japanese equities after Prime Minister Shinzo Abe's success in Japan's snap election yesterday.

Abe's victory in the early election, called after news that Japan fell into recession in November, supports the optimism in the Japanese equity market expressed by some fund managers last month.

Abe's Liberal Democratic Party secured its House of Representatives majority for another term, with 290 seats out of 475, according to Japanese media. The party will govern with its coalition partner, the Komeito party, which won 35 seats.

James Dowey, chief economist at Neptune Investment Management, says his firm expects Abe's policies of aggressive monetary expansion and exchange rate depreciation to boost Japanese equity prices over the next few years.

"We are satisfied that the government and the Bank of Japan remain committed to their implementation," he says, adding that he recommends that UK investors hedge exposure to the falling yen.

Russell Investments senior investment strategist, Wouter Sturkenboom, says Abe has gained popularity and momentum for his reform agenda, while Paul Niven, head of multi-asset investment at F&C Investments, says the confirmation of Abe's leadership should renew market confidence in Japan.

Richard Kaye, manager of the Comgest Growth Japan fund, describes Abe's election victory as "historic", adding that it makes him "unstoppable until December 2018".

Kaye predicts Abe has "carte blanche" for radical reforms, and potentially even constitutional change, as he presses forward with the three branches of "Abenomics" – fiscal stimulus, monetary easing and structural reforms.

"I expect Abe to move quickly on corporate tax, the Trans-Pacific Partnership trade agreement, and nuclear plant restarts, which will each significantly reshape the Japanese economic landscape," says Kaye.

Analysts were optimistic about Japan despite a disappointing voter turnout of 53%, an all-time low. Robert Rountree, global strategist at Asian asset manager Eastspring Investments, says: "We urge investors not to take their eyes off Japan."

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