2020 Investment Outlook

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And just like that, another year is gone! After a long wait for the 2019 Rugby World Cup to get started in Japan, the six-week tournament went by in a flash. And now here we are looking forward to the Olympics. I hope 2019 was a rewarding year for you.

When it came to markets, it was one of the best years for risk assets since the Global Financial Crisis with the S&P finishing +30.7%, MSCI Europe +27.1%, MSCI UK (despite Brexit) +16.4%, Japan Topix +18.1%, MSCI Emerging markets +18.4%. Crude oil was +22.7% for the year and Gold +18.3%. This appetite for risk meant that safe haven government bonds were subdued, while US High Yield and Emerging Market bonds returned +14.3% and +12.6% respectively. Bitcoin once again refused to die and posted an impressive return of +95% for the year.

Looking forward to this year “Don’t expect a replay of 2019” seems to be a recurring message, particularly when it comes to equities. Once again Bloomberg have compiled a thorough Wall Street round up for people who have the time:

For those who like to keep it simple, here is a list of key themes to look out for:

  • The end of the bull cycle is getting nearer, but it is still not here yet…
  • Equity and bond market valuations are significantly higher than they were a year ago.
  • Central banks are likely to continue pursuing ultra-loose monetary policy.
  • Smart investors remain invested but are staying alert and perhaps reducing risk.
  • The recent escalation between the US and Iran highlights the potential for sudden geopolitical shocks.
  • There is still potential upside for gold if/when things get rough.
  • Don’t let the US election distract you too much. Politics are not necessarily a good indicator of market returns.
  • Trade is again likely to dominate headlines and unsettle markets from time to time.
  • The Bitcoin halving occurring in May is likely to dominate crypto talk – here’s a detailed and rather bullish post on that for those interested.

At risk of repeating myself year after year, planning and strategy don’t need to be complicated:

  • Have a plan! Read this post if you don’t have one.
  • Stick to your guns. Don’t let the noise divert you from your commitment to saving and investing. (the Japan market made most of its returns in the last third of 2019. If you weren’t buying in the first two thirds then you missed it)
  • Diversify and rebalance – particularly if you are heavily invested in stocks and coming off a good year.
  • Max out tax advantaged investments such as NISA.
  • Look for Japan stocks that are likely to benefit from the Olympic buzz (see what happened to The Hub stock price around Rugby World Cup time)
  • Keep an eye on what the bank of Japan are buying – see post here.

With that I wish you all the best for 2020 and hope you enjoy the Tokyo Olympics!

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

Japan ETFs for 2020

 

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Cheers everybody! I’ll have what they’re having!

Happy New Year! I wish you all health, wealth and happiness for 2020. Most of us are settled back into work now, and some of you may even be planning your investment strategy for the year to come. Perhaps you are considering how to allocate your NISA contributions, or just wondering how things will play out over the next 12 months? There is a lot of investment chatter around the Olympics of course, but it’s also interesting to note what Japan’s central bank is doing.

I saw the above chart on a tweet from Zerohedge towards year-end. It has been widely publicised that the Bank of Japan have been big buyers of Japan Exchange Traded Funds over the last three years, but what exactly are they buying? And if you were buying Japan stocks at this time, would that influence your choices?

It turns out that the BOJ don’t simply buy only the Nikkei or Topix indices. As part of their overall public policy, the BOJ send a message by focussing on stocks of companies that actively engage in capital and human resources investment. (see here) In order to encourage companies to invest in their people and long-term assets, the BOJ is willing to invest some 300 billion yen per year. (their actual purchases can be tracked here so you can keep an eye on whether they are still buying)

A big issue the BOJ face is that they are constrained to not purchase more than half of the market value of any one ETF. The rest should be held by private investors. There are only a handful of ETFs that fit the definition of capital / human resources investment ETFs and, as the Japanese public have been slow to wake up to the idea of investing in this area, it is hard for the BOJ to find anything big enough to allocate the whole 300 billion yen to.

What that means is, that if you invest in one of these ETF’s, you are effectively giving the central bank the ability to “match” your investment. Every ¥10,000 the public invest adds ¥10,000 to the capacity the Bank of Japan have to buy that same fund. That’s a pretty heavy hitter you’ll be investing alongside!

The following ETFs look like they would fit the investment criteria:

1479:JP Daiwa ETF MSCI Japan Human and Physical Investment Index

1484:JP One ETF JPX/S&P CAPEX & Human Capital Index

1480:JP Next Funds Nomura Enterprise Value Allocation Index

It’s also interesting to note what happens with the money that can’t be invested due to lack of capacity: It is allocated to a JPX-Nikkei 400 ETF. It turns out that companies in this index have been quick to wake up to the prospect of big investment from the BOJ and have been making an effort to increase capital and human resources investment, which then acts as a stimulus to the real economy.

So if you are a buyer of Japan stocks today, and I’m not saying you should or shouldn’t be, but if you were, wouldn’t you want to have some of what the BOJ are having?

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

Which is the Best Performing Stock Market?

If you had allocated $100 to one of the major stock markets 30 years ago, what would it be worth today?

I first saw this chart today on Zerohedge, but the original article is by Jeff Desjardins on Visual Capitalist.

It’s quite fascinating to see seven major stock markets compared on the same scale in this way:

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And the final value of a $100 investment in each market after 30 years:

United States: $1,001

Hong Kong: $924

Germany: $920

Canada: $544

France: $368

United Kingdom: $338

Japan: $101

Despite the obvious takeaways that USA / HK / Germany were great markets to be invested in, while 1990 was a terrible time to only buy Japan, we should probably note the following when allocating to stocks:

  • Stay invested – despite some severe bumps in the road, stocks generally increase in value over time
  • Diversify – we don’t know which market will be best for the next 30 years so spread your money around
  • Be patient – achieving big numbers takes time

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

What is the Bitcoin Halving?

 

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If you follow cryptocurrency, you may well have heard about the upcoming Bitcoin halving, or halvening. So, what on earth is a halvening and what could it mean for the price of BTC?

What is it? – The halving refers to the reward paid to miners being reduced in half. Miners add “blocks” to the blockchain by performing transactions. Currently they earn 12.5 Bitcoins for each block added, but that will reduce to 6.25 Bitcoins.

When will it happen? – One block is added to the Bitcoin blockchain roughly every 10 minutes. Halvings typically occur every four years or so and this will be the third halving to date. If nothing major changes it is due to take place in May 2020.

What effect will the halving have on the price of Bitcoin? – Well, nobody knows, but previous halvings have seen an increase in the price of Bitcoin. The simple theory goes that as supply is cut short, miners will charge a higher price for their Bitcoins. The number of Bitcoins to be mined is fixed at 21 million, so each cut in new supply makes Bitcoin more scarce, and therefore more valuable. However, past performance is no indicator of future results. Some commentators believe the halving is already priced in, while others are predicting a severe drop in price before the halving even takes place.

Here’s an interesting price chart showing the previous halving dates.

My view is that Bitcoin is worth accumulating whenever the price dips, as it will pay off in the long run. However, price volatility can be severe and cautious investors should, of course, be careful of overcommitting. Crypto investing is not for the faint hearted, but it will be interesting to watch what happens after May next year.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

 

 

International Health Insurance

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If you live and work in Japan, you are probably quite satisfied with your health insurance coverage. The Japanese national health insurance system is super-efficient and covers 70% of medical costs. Unless you have a serious injury or illness, you are unlikely to get any nasty surprise medical bills.

This is how I’ve thought of my own health insurance until recently. I bought a little extra cover in case of an extended stay in hospital and figured I’m good.

Then a friend of mine got a critical illness. Without going into too much detail, the doctors in Japan told him to get his affairs in order, there’s nothing they can do. He then returned to his home country and found that actually there is an option to undergo immunotherapy. The cost, however, is around 2 million yen equivalent per month…

Thankfully, many years ago he took out some international health insurance with a UK insurance company. He faithfully paid his premiums for years and now, when he actually needs it, they have agreed to cover the full cost of his treatment.

I don’t think I need to spell this out much further. Google international health insurance, do a bit of research to find a policy that fits you, and sign up. If you are choosing from a well known provider the terms and costs are likely to be pretty similar. The one choice you will need to make is whether you want US cover or not.

You may pay your premiums for years and feel like you are wasting money. Hopefully you’ll never need the cover. However, like my friend, there may come a time when you will be glad you had it.

Pension Shortfall – Reality Sets In

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A recent report from the Financial Services agency is causing quite a stir in the Japanese media after it detailed a shortfall in pension provision for retirees. It’s estimated that a quarter of Japanese 60 year olds will live until 95 and will need an extra 20 million yen for a 30 year retirement. (article here)

Of course the Japanese are known for their world-leading life expectancy, but the issue highlights another Japanese trait: saving money in cash instead of investing. A news report I watched this morning estimates that the average Japanese family has over half of their assets in cash, which of course earns next to nothing in the bank and is eroded by creeping inflation. This unwillingness to take risk could come back to haunt them in later life as they age and run out of money.

The political leadership are adamantly defending the credibility of Japan’s public pension system, but the reality of a pension shortfall has been known for some time. It seems a little unfair to only now be telling an aging public that they need to invest more.

Certainly there is a lesson here for everyone: Improved lifestyle, technology and advances in healthcare mean many of us will live longer than we perhaps once thought. With a noticeable reduction in the number of defined benefit pensions these days, we all need to save and invest more for the future.

It’s particularly important for younger people to realise this now and not wait too long to get started saving for retirement. Here is a useful calculator to help you understand if you are looking at a retirement surplus or shortfall.

If you are looking at a potential shortfall, you may want to review this section on retirement planning.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.

How to Get Rich (without getting lucky)

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And now for something different… If you recognise the title of today’s post, you probably already follow Naval Ravikant. And if you don’t, I recommend checking out his work.

His tweetstorm on getting rich is pinned to his Twitter page, and has also been reproduced in pdf form here. There’s a lot of knowledge packed into a five minute read and I think I might be coming back to this again and again.

I’m not going to try to summarise Naval’s thoughts and work, because he is already incredibly concise. Check out his series of short podcasts on Youtube and you will see what I mean. You will also find more on his website here.

Enjoy!