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Japan seen as safe haven amid trade row, EM risks

Japan seen as safe haven amid trade row, EM risks

Japan is a relative safe haven in the current world of trade conflicts and emerging markets (EM) risks, according to industry experts.

Andy Wong, senior investment manager for the international multi-asset team at Pictet Asset Management told Citywire Asia that Japan is seeing the longest run of positive real gross domestic product (GDP) growth under Abenomics.

The country’s nominal GDP growth is improving, wages are starting to rise slowly, and broad liquidity is improving. What’s more, Japanese retail sales and housing starts are also recovering.

According to macroeconomic data provider CEIC, Japan's nominal GDP reached $1.267 trillion in March, compared with $1.22 trillion in the previous quarter. 

Workers’ real wages rose 2.8% in June from a year earlier, just released data from Japan’s labour ministry confirmed.

In fact, the real wages increment in June marked the fastest pace of growth since January 1997. It also followed a 1.3% annual increase in May.

Retail sales in Japan also rose by 1.8% year-on-year in June, after a 0.6% gain in May, beating market consensus of 1.6%, according to information from data provider Trading Economics.

It was the eight straight month of growth in retail trade and the strongest since last December.

Auto tariffs

In July, the US announced plans to impose 20% tariff on all imported vehicles.

Though this could do immeasurable damage to the automotive industry in Japan, Eastspring Investments believes that Japanese automakers are in a better position to weather the tariffs because they produce more cars in the US than they import.

Japan’s automakers also have alternative export destinations should tariffs affect their US sales. China, which is now the largest auto market in the world, is one example.

‘For a start, Japanese automakers stand to benefit from China’s auto tariff reduction from 25% to 15%,’ Eastspring wrote in an investment note.

Meanwhile, Japan has also signed the EU-Japan Economic Partnership Agreement with the European Union last month. The agreement eliminates 99% of tariffs on Japanese imports by the European Union.

Attractive valuations

Corporate earnings in Japan have been strong and consistently delivered above analysts’ forecasts since the third quarter of 2017.

Valuations of Japanese equities, meanwhile, have also remained at attractive levels since 2010.

There are a number of great companies going for a bargain in Japan, according to Eastspring.

‘We continue to identify excellent stock buying opportunities in the current environment,’ Eastspring said.

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