Do you remember Abenomics?
The terms refers to the economic policies introduced by Japanese prime minister Shinzō Abe following his second term election in December 2012.
Abenomics is based on the ‘three arrows’ of fiscal stimulus, monetary easing and structural reforms.
And the markets seem to love it. Until now, that is.
Yesterday we saw Japanese stocks fall sharply in value, with the broad-based TOPIX index down 4.8%.
It means that the index of Japanese company shares is now 12.5% lower since the start of 2014.
So what is going wrong in Japan?
According to Alex Treves, Head of Equities for Japan at Fidelity Worldwide Investments, this fall in Japanese stocks can be attributed to emerging market risk and a stronger yen.
“At this stage, the pickup in the global economy remains on track. Japan’s recovery continues to proceed steadily and the reflation theme remains on course.
“Furthermore, Japan has led the world in terms of positive earnings revisions over the past year and the outlook for earnings growth compares favourably with all other major regions.
“Prime Minister Abe will consolidate his policy agenda in the coming months and provide greater clarity on his multi-year roadmap for reforming Japan.
“It is important to be realistic about the likelihood of a sudden transformation, but equally the prospect of a long term improvement in Japan’s outlook is very much alive.
“Crucially, the patient bottom-up observer can find encouraging signals of change on the ground.
“While risk assets are likely to remain volatile for the time being, we view the current correction as an opportunity to selectively add on weakness and our analysts are actively promoting ‘buy on dip ideas’ to portfolio managers.”
Japan has proven a tough environment for investors for many years.
It continues to play a role within a well diversified investment portfolio, but the performance of the TOPIX since the start of the year is a timely reminder that Japan often disappoints.
