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Goldman Sachs Buying Japan’s Exporters, Banks On Abe Policy Bet
Perspective | 04 January 2013

Goldman Sachs Group is buying shares of Japanese exporters and banks as Prime Minister Shinzo Abe’s new government promises to do more to end deflation and weaken the yen.

The investment bank’s asset management unit in Japan is buying shares of the nation’s machinery and electronics exporters, financial firms and electricity producers, according to Hiroyuki Ito, Tokyo-based head of equity investment at Goldman Sachs Asset Management, which oversees about US$716 billion globally. Goldman Sachs started increasing its holdings in October in anticipation that elections would be called, he said. The Liberal Democratic Party (LDP) took power in a 16 December poll.

Abe said his government’s top priority is to revive an economy that last quarter fell into its fifth technical recession in 15 years. The Nikkei 225 Stock Average has jumped nearly 20 percent since 14 November, when the former government said it would hold a general election. The gauge has risen the most among the world’s 10 largest markets this quarter.

“Japan finally has a catalyst for the stock market to rise,” Ito said in a 26 December interview. “The new government has an understanding of the impending danger and a sense of urgency about boosting the Japanese economy. We’re finally going to see an end to Japan’s deflation and a strong yen.”

Ito declined to discuss individual stocks.

Shares of companies such as Mazda Motor Corporation, which sells about 80 percent of its Japan-made vehicles overseas, and Canon, the world’s biggest camera maker, are leading Japanese manufacturers higher as the yen weakens. A declining currency makes exports more competitive and boosts the value of overseas sales when repatriated.

Yen Trend
Japan’s currency slid this week to its lowest level against the US dollar since September 2010 as the new government champions fiscal and monetary stimulus, along with a weaker exchange rate. The LDP and its New Komeito coalition ally agreed on a 2 percent target for inflation, signaling increased pressure on the Bank of Japan to add to its asset purchases.

“We’re bullish on Japanese stocks this year and the basis for that is the currency,” said Ito. “The yen’s strength has really hurt Japanese industry, but that trend has ended. The government has made its message very clear: they will be rigorous in boosting the economy.”

To be sure, Japanese shares have a history of disappointing investors. The Nikkei 225 has fallen in four of the previous five years. Its 22 percent advance this year leaves it 2.1 percent below its closing price at the end of 2009. The Standard & Poor’s 500 Index gained more than 26 percent since then.

Banks And Brokerages
Ito is also positive on Japan’s financial sector. Shares of banks and brokerages have surged in the past month on optimism reflation will boost the value of assets, increase loan demand and appetite for risk as people become more confident.

The Topix Securities Index, which tracks brokerages such as Nomura Holdings and Daiwa Securities Group, is on course for a 35 percent advance this month, its best monthly performance since March 1999 and the biggest increase among 33 industry groups on the broader Topix Index.

“The fundamentals are getting better,” Ito said. “The banks are in a good position and the securities market is getting better. Global investors who were underweight Japan will have to increase their holdings of the country’s shares to neutral at least, so the market has room to rise further.”

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