Krungsri Asset Management Company Limited recently held a seminar on "Japan vs the United States, which market to reap profits in 2017," inviting investment gurus: Ms. Chatkaew Groatong, Vice President for Alternative Investment Department, and Mr. Kiattisak Preecha-anusorn, Assistant Vice President for Alternative Investment Department, to brief on comparative economic data and the US and Japan's stock market outlooks. Pros & cons with risks in investment and impact factors for market growth were also analyzed for investment decision-making. The seminar was held at Access Place, Ploenchit Tower on Thursday, 29 March 2017.

Mr. Kiattisak said that the US stock market has grown from robust economic conditions and certain signs of economic recovery that leads to the Federal Reserve's recent raise of interest rates and growth in business sectors - consumption, manufacturing, services, real estate, including and a decline in unemployment rate and increase in wage. According to the International Monetary Fund (IMF), the US gross domestic product (GDP) is forecasted to expand from a range of 1.6% in 2016 to 2.3% this year. Besides, another positive factor for the US economy is US President Donald Trump's policy spanning from a corporate income tax cut from 35% to 15% which could bring profits to the company and entice foreign capital to move back to the country, deregulation in business constraints particularly in the finance & banking and energy sectors which could lead to business expansion, and infrastructure development with planned spending in projects for more job creation. The US economy has signaled positive signs after Trump took the US presidential office.

U.S. GDP

Source: MF World Economic Outlook (January 2017)
 

With respect to risks in stock market - concerns over conformity to Trump's policy according to a recent election voting, depreciating the recent US rate rise, KSAM viewed that Trump's policies will be partly processed but will suffice to keep the economy growing stronger than currently shown. In this regards, there is a difficulty to achieve trade protection policies due to some protests, while the US rate rise will not affect the stock market since its adjustment is at super-low level. However, the stock market tends to rise according to an increase in interest rates being adjust from good economy condition.

For Japan, Ms. Chatkaew explained that its economy has recovered at a gradual pace. Japan's expansion came mainly from domestic consumption, the key economic driver which contributes 58% of the nation's GDP. The country's inflation has seen improvement from its prolonged deflation throughout the past two decades. 

 

Besides, "Abenomics," a bold three-arrow strategy of Japan's Prime Minister Shinzo Abe during 2012-2016, was a combination of monetary easing, fiscal stimulus and structural reforms. On the monetary front, money was injected into the system to spur inflation and stimulate people's spending. The fiscal stimulus drove up the public expenditures, while the structural reform extended from cutting the corporate tax rate to increasing workforce in the system and wages. All of these key Abe pushes lowered the unemployment rate, heightened money in the economic system, revive Japan's stagnant growth and boost corporate profits. Japan's tourism promotion and a host for the Olympics 2020 will be another push for Japan to make a significant recovery.

Talking about Japan’s stock benchmark, the Nikkei 225 index has skyrocketed over 80% as a result of Abenomics policy and tends to surge further on the back of consistent supports from both public and private sectors. Last year, the Bank of Japan increased its purchase of ETFs in Japan’s stock market from 3.3 trillion yen per year to 6 trillion yen per year. This year is expected to see share buybacks from Japanese private firms from 5 million yen in the previous year to 7.8 trillion yen. Presently, the Government Pension Investment Fund (GPIF), the world's largest pension fund's holding of domestic shares has yet to reach its targeted range of 25% (as of December 2016, the holding was 23.76%.). Therefore, there remains a chance for more capital to pour into the Japanese stock market. Besides, the US benchmark rate's expected rises prompt a wider gap between the US bond yield and Japanese bond yield, which could pressure the Japanese yen to depreciate against the US dollar. This likely reaction will be positive to earnings growth of listed companies in Japan. This year, most analysts expect Japan's listed firms to record their earnings growth in a range of 9-12%. 

Given the positive factors for both countries' economic recoveries and stock market improvements, investing in US and Japanese stocks look attractive. Investors may opt to invest in either KF-HUSINDX (Krungsri US Equity Index Hedged FX Fund) which invests in iShares Core S&P 500 ETF or KF-HJPINDX Fund (Krungsri Japan Equity Index Hedged FX Fund) which invests in Nikkei 225 ETF under management of Nomura Asset Management. Both adopt the passive style of investment, focusing on making returns to be close to S&P 500 and Nikkei Index. No less than 90 per cent of these funds are hedged against foreign exchange risks (FX risks). KSAM believes that both US and Japanese markets contain upside at approximately 9%. Investors are advised to watch a right timing to invest for higher returns.
 

For those who want to adjust their investment portfolios in 2017, KSAM gurus recommend an investment portfolio that focuses on investing in fixed income 37%, equities 63% - 33% in Thai stocks, 20% in developed markets, and 10% in new emerging markets. This portfolio pattern is suitable for investors with medium risk appetite.

Furthermore, In addition, KSAM selects seven FIFs with expected returns and growth potential for long-term investment. Investors may invest in any of these FIFs upon each individual's tolerance level of risks.