With the UK Autumn Budget and the upcoming US Election dominating financial headlines, it’s easy to forget that there have been some important elections around the world.
It went relatively under the radar, but Japan held its own election on 27 October.
To the Liberal Democrat Party’s (LDP) surprise, the long-ruling incumbent lost its majority in parliament. The LDP and its coalition partner Komeito took 215 seats, which falls short of the 233 seats needed to govern a majority.
Shigeru Ishiba had called the vote to strengthen his position, after he took over as prime minister at the start of October, following the resignation of Fumio Kishida.
Things haven’t gone to plan though.
It’s been a change in tack for a country that’s usually seen as being politically stable. And uncertainty isn’t what Japan needs as it continues to try to transition away from years of deflation.
Ishiba has vowed to stay in office despite the loss of a parliamentary majority. But there remains a level of apathy towards the LDP and, as we know with all things political, nothing is certain.
This article isn’t advice. All investments can rise and fall in value, so you could get back less than you invest. Past performance isn’t a guide to the future. If you’re not sure if an investment is right for you, ask for financial advice.
What does this mean for Japanese markets?
Firstly, the uncertainty could see the yen weaken. In fact, immediately after the election result, the yen lost all the gains it made since the Bank of Japan raised rates in July.
Some believe a weaker yen could support Japanese share prices, but there are no guarantees, and the uncertainty could lead to further stock market volatility.
Over the longer term, Japan is still an interesting place for investors – in our opinion its stock market looks relatively good value, and it offers something different from other regions and economies.
If any weakness in the market materialises it could be an opportunity for investors to take a closer look. But ongoing ups and downs can’t be ruled out.
How to invest in Japan – 2 fund ideas
Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversified portfolio.
For more details on each fund, its risks and charges, please see the links to their factsheets and key investor information below.
Man GLG Japan CoreAlpha
Man GLG Japan CoreAlpha focuses on larger Japanese companies, some of which also carry out business overseas.
The managers use a contrarian approach, often known as 'value investing'. Their discipline in buying out-of-favour companies and gradually selling them as they recover sets them apart.
They tend to invest in a relatively small number of companies, meaning each one can make a significant difference to how the fund does, but it also increases risk.
We think this fund could work well in a global shares portfolio designed to provide long-term growth. Its focus on large companies means it could sit well alongside funds using a growth-style investment approach, or those focused on medium-sized or smaller companies.
iShares Japan Equity Index
iShares Japan Equity Index provides low-cost exposure to large and medium-sized companies in Japan.
It aims to track its benchmark, the FTSE Japan, by investing in every company in the index. Around 5% of the fund invests in smaller companies. The fund can use securities lending which adds risk.
Smaller companies have greater growth potential, but can experience more extreme price movements. This can benefit the fund in the long term, but adds risk.
An index tracker fund is one of the simplest ways to invest. This fund could be a great, low-cost starting point to invest in Japan in a portfolio aiming for long-term growth.
Annual percentage growth
Sept 2019 To Sept 2020 | Sept 2020 To Sept 2021 | Sept 2021 To Sept 2022 | Sept 2022 To Sept 2023 | Sept 2023 To Sept 2024 | |
|---|---|---|---|---|---|
Man GLG Japan CoreAlpha | -21.35 | 37.26 | 0.61 | 25.83 | 6.34 |
iShares Japan Equity Index | 2.65 | 15.90 | -12.81 | 12.95 | 11.94 |
IA Japan | 3.84 | 17.47 | -14.93 | 12.97 | 11.86 |