Asia Tea Time - Cup 29 ☕

This week, I cover news on Japan, investment approaches, and the JR Pass.

Macro in Asia

Japan’s government promotes its market to international investors 

Japan’s government is appealing to foreign investors that Asia’s second-largest economy is a place that they want to invest in. 

Prime Minister Fumio Kishida hosted a range of large asset managers and pension funds, laying out the bull case for the Japanese economy.

Why it’s happening

• Companies and institutions worldwide are looking for another Asian growth story as China’s economy struggles with property debt and a slowing consumer – conveniently enough Japan fits the bill.

• Partly that’s down a surging stock market in Japan in 2023 (up over 20% in local currency terms) as a weak Japanese yen and a long-awaited return to inflation have helped pump up sentiment.  

Why it matters

• Japan’s economy and stock market were riding high as recently as…1989 but that bubble burst in spectacular fashion. 

• A lot of foreign investors are therefore wondering if “this time could be different” after experiencing pretty abysmal investment returns from the Japanese stock market over the past 30 years.

• Japan’s ageing, and deflationary, economy is often written off but with inflation finally returning, along with proposed corporate reforms, this could be Japan’s moment to shine.

What’s next?

• See if Japan’s government follows up the talk with meaningful reform on the corporate governance front and whether it can get the economy humming again.  

Tim’s Take 

Japan has been one of those markets that has been “under-owned” by foreign investors for many years. Why? Mainly because of the poor performance and unfulfilled promises.

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This “recency bias” for foreign investors is hard to overcome (you end up remembering the most recent bad times rather than the faraway good times) but Japan’s economy has a real chance to turn it around if the government and corporations can work together to deliver reform.

One area that requires change is for companies to actually pay their staff more. The Japanese economy has been weighed down by falling prices, and therefore, stagnant wages.

Indeed, in August, Japan’s inflation-adjusted wage growth (basically wage growth after inflation is taken into account) was negative for a 17

th

consecutive month. 

However, there has been some good news – large companies agreed to solid wage increases of 3.6% in 2023 as strong earnings and labour shortages (they’re everywhere!) contributed to the bump.

Even so, foreign investors will have to see if inflation properly returns in Japan and whether reforms can turn this rally into something more permanent. 

Tim's Money Tip of the Week

A lot of serious investors have very strong opinions on whether their way is the “right way” to invest. The mentality of “I’m right, you’re wrong” can persist, unfortunately.

However, your capacity to invest is going to be constrained by a number of factors; your age, your risk appetite, your available capital, and your life goals.

In other words, every single person is going to be different and everyone is going to have a different style because no two people are the same in terms of the above.

At the end of the day, your investment approach should be mostly determined by your risk appetite and time horizon. 

That’s because buying bonds (for example) would suit someone who’s older – with a shorter time horizon until retirement – and is focused more on preserving capital (rather than growing it massively) before they need to cash out.

Contrast that with a young person who has just started working and has a much longer time horizon to invest and should be able tolerate the market’s ups and downs. 

The data has told us time and again that stocks are the best asset class to own, in terms of investment returns, over the long term but the ride isn’t at all smooth – that’s a key thing to remember.

Ultimately, you have to invest in assets that you’re comfortable owning and that you’re not losing sleep over (if the market falls 10-20%) because investing money for our future should be anything but stressful.

Story of the Week

With the aforementioned super weak Japanese yen, it’s actually one of the best times in living memory for tourists to visit the country.

However, the Japan tourism scene was making news this week as the new pricing structure for the almighty Japan Rail Pass (JR Pass) kicked in at the start of October.

With prices for the various rail passes rising by a whopping 65-69%, some have said that the rises would put off tourists from purchasing them. Who ever said Japan didn’t have inflation?