Will the sun continue to rise for Japanese investment trusts?

Funds invested in Japan have finally produced good returns due to a turnaround in the economy, but will this positive performance continue?

Sunday, September 24th 2000, 10:20AM

After a long period of depression, the performance of Japanese investment trusts has been rapidly improving from October 1998. If you had invested $1,000 into the average Japanese investment trust one year ago you would now have $1,343 (Source: CSFB).

Over the past three years the Japanese investment trust sector is the third best performing investment trust sector after International Smaller Companies and Europe. A $1,000 investment in the average Japanese investment trust three years ago would today be worth $2,785.

With this improved performance the average discount on Japanese investment trusts has narrowed from 14% at the end of August 1999 to 9% at the end of August 2000.

But is Japan a good investment prospect for the future?

Baillie Gifford Japan Investment Trust manager Sarah Whitley says "Japan remains an attractive market to invest in for the longer term, because of two different trends which are both positive for equities. The first is the cyclical recovery, which started two years ago and is gathering momentum. Profits across the economy grew by 40% in the quarter to June as companies focus more on returns and as demand improves.

"The second trend, which has only just begun, is the structural change. This change, although sometimes hindered by the government, is being driven by globalisation and the demands of an ageing society. It has been embraced by many listed companies and is supported by changes in accounting, tax, and legal frameworks."

Fleming Japanese Investment Trust manager Stephen Mitchell says, "Japan is in the early stages of an economic recovery driven by new technology and corporate restructuring. At some stage this corporate recovery will restore confidence to the labour market and boost consumer spending. However, it is unlikely to take place in the next six months although there are some positive signs of life in urban Tokyo.

"Over the long-term, investors should be confident that there is value in the Japanese market which greater merger and acquisition activity will release."

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