I’ve been re-reading William Gibson’s Neuromancer recently. Published in 1984, this cult sci-fi novel gave readers the first mainstream vision of a world connected by something like the internet. Gibson coined the word ‘cyberspace’, among other things. The story is pretty pulpy (perfect for winding down after trawling mind-boggling figures on poor old Ireland’s woes), but it’s an impressive vision of the future.
Just one thing really dates it. The dominant culture and the brands name-checked are Japanese. Gibson was writing at a time when Japan was where China is today. A new superpower in the making, armed with devastating Asian efficiency and far-sighted central-planning economies. That particular vision of the future peaked at the end of 1989. The 1990s were Japan’s first lost decade. And the first ten years of this century haven’t been much better for that country.
Such is the popular view. But Jonathan Allum of Mizuho Capital begs to differ. Yes, Japan did terribly in the 1990s. If you compare the market’s performance to that of the rest of the world since 1980, then “the big calls of the last 30 years were to go long Japan in 1982 and short in 1990”.
However, since 1998, measured in a common currency, “Japan has just moved in line with everyone else with the occasional wiggle”. And this year, it has done rather better than most. Measured in sterling, the Topix index is up 9.1% year-to-date. The FTSE 100 is up 3.7%, and the S&P 500 by 8.2%. And while it lags India (up 15.9% this year) and Russia (up 9.7%), Japan is ahead of Brazil (1.9%) and China (down 6.8%). “Beating two out of four Brics ain’t bad”, as Allum says.
But can it continue? We believe so. As Henry Maxey of Ruffer notes, emerging markets look vulnerable, regardless of how effective the Federal Reserve’s latest money-printing efforts (quantitative easing) end up being. And with the eurozone in trouble again and fears over Korea, the US dollar is rallying again. In recent years, as Dominic Frisby pointed out this week, when the dollar rises, most other assets fall.
But one stockmarket is sure to benefit from a stronger dollar – export-heavy Japan. Indeed, in his latest Gloom, Boom & Doom report, Marc Faber notes that while many assets look vulnerable, the risk in Japanese stocks “is limited and I would consider gradually increasing my exposure.”
There’s currency risk, of course. But with many investment trusts still on big discounts – both Baillie Gifford Shin Nippon (LSE: BGS) and the JPMorgan Japanese Investment Trust (LSE: JFJ) are at 18% discounts – the investment upside should hopefully outweigh any currency downside. China may be a future economic superpower. But if you’re an investor looking to make a decent long-term return, we’d back Japan.