Why 2018 is the year to invest your cash in Japanese post boxes . . . and turn your back on Trump
MILLIONS of us will resolve to make a fresh start this week — whether that’s joining a gym, eating healthier or seeing more of our families in the New Year.
So why not take the same approach with your investments? This is the ideal moment to review your plans and exchange poor-performing funds for ones set to soar.
Here, Money Mail asks the experts to tip places where shares will boom — or bust — in 2018.
JAPAN — THE LAND OF RISING OPPORTUNITIES
INVESTORS have shunned Japan since the early Nineties, when a stock market crash left savers with their fingers burned.
This plunged the Land of the Rising Sun into years of economic stagnation, referred to as its ‘lost decade’.
But now experts predict another booming year for the Japanese stock market.
One reason is that Japan has experienced nearly two years of unbroken economic growth.
Experts put this down to Prime Minister Shinzo Abe, who instigated sweeping economic reforms in 2012 after he was voted in for a second term.
He is expected to continue with his mission to revitalise Japan’s economy by ploughing billions of pounds into new roads and bridges, slashing red tape for businesses and cutting taxes after winning a landslide election in October.
Experts say there are plenty of bargain shares in Japan at the moment, and its stock market is filled with household names such as Toyota, Panasonic and Sony. These are all respectable firms that sell all over the world, so you can be confident you are investing in quality companies.
Adrian Lowcock, of investment firm Architas, says: ‘Japan had a really strong 2017. It’s clear that Shinzo Abe’s mission to reform the Japanese economy is starting to bear fruit. Now Abe has been re- elected, it should be great news for the stock market, which I think will have another strong year in 2018.’
Mr Lowcock believes Man GLG Japan Core Alpha and Baillie Gifford Japanese are two of the best funds to invest in Japan.
Man GLG Japan Core Alpha’s three biggest stock picks are the motoring giants Toyota, Honda and Mitsubishi.
Toyota, the world’s secondlargest car manufacturer, made the headlines earlier this month when it pledged to introduce electric or hybrid versions of all of its vehicles by 2025.
It also invests £5.10 in every £100 of savers’ cash in Japan Post Holdings, the state-run company that delivers the country’s post.
Man GLG Japan Core Alpha has turned £10,000 into £23,151 in the past five years.
Baillie Gifford Japanese’s biggest pick is SoftBank Group, which is best known to investors on these shores as the firm that bought leading British computer chipmaker Arm Holdings in a £24 billion deal in July 2016. The telecommunications giant is also trying to buy a 30 pc stake in Uber, the cab hailing app, for £36 billion.
Around 2.7 pc of the fund’s cash is invested in Start Today Company, which owns Zozotown, Japan’s most popular online store.
The fund, which has turned £10,000 into £27,783 in five years, also has stakes in Toyota and Nintendo, the world-famous games console maker, which accounts for 2.7 pc of the fund.
THE UK — TICKING OVER NICELY
WITH Britain’s path out of the EU so unclear, savers have become nervous about investing in UK companies. Remainers have repeatedly talked down the British economy since the Brexit vote last year.
Investors have pulled nearly £4.3 billion from UK funds over the past 18 months.
Another factor in the mix are fears that the stock market would plummet if Labour wrestles power back from the Conservatives and Jeremy Corbyn implements his threatened hard-Left policies.
But despite the doommongering, the raw data shows that Britain’s economy has kept ticking over.
Unemployment is low, wages are rising — albeit slowly — and the economy has been forecast to grow by at least 1.5 pc this year and next, according to the International Monetary Fund.
Jason Hollands, of broker Bestinvest, says that the critics who are talking down Britain have inadvertently created major investing opportunities.
If Britain does manage to secure an agreement for a smooth exit from the EU, as Brexiteers hope, shares could start to rise as investors gain confidence. Mr Hollands says: ‘Investors have shunned the UK throughout 2017 because of worries about Brexit. Companies that do most of their business in Britain are valued quite low, but that could change if the UK and EU strike up a good trade deal.’ Another advantage of investing in the FTSE 100 is that it is one of the most international stock markets in the world, filled with huge firms that earn large amounts in dollars rather than pounds. The fall in value in the pound has given these firms a boost because the dollars they earn are worth more when converted backinto British currency. With Brexit still a major unknown, think of Britain a s your investment wildcard. For investors, Mr Hollands tips Evenlode Income. The fund, which has turned £ 10,000 into £ 19,350 in the past five years, is packed with British giants that earn most of their money overseas, such as Johnnie Walker whisky-maker Diageo and Unilever, the company behind Marmite. Ben Yearsley, of adviser Shore Financial Planning, recommends JO Hambro UK Equity Income, which has turned £10,000 into £17,776 in five years.
INDIA — A WILD RIDE, BUT REWARDING
INDIA is one of the world’s fastestgrowing major economies. Annual rises in the value of its economy are expected to jump from 6.7 pc this year to 7.4 pc by 2019.
In fact, Sebastian Vergara, one of the UN’s economic experts, said this month that India can grow at 8 pc a year for the next 20 years if it manages to encourage businesses to grow by ploughing profits back into the company and improving living standards.
India’s major economic advantage is an enormous workforce, with 125 million people set to reach working age during the next decade.
It also has a growing middleclass with money to spend. The rise of the Indian consumer is great news for companies flogging goods and services.
But while there is a clear case for investing in India, experts say you should expect a bumpy ride for your investments.
Ryan Hughes, of broker AJ Bell, says: ‘For years India has lived in the shadow of China. ‘But in the past few years it has become a better place for shareholders, it has a strong democracy and it is working to drive out corruption.
‘On top of that, you’ve got a large, educated workforce, which will, in time, deliver strong returns for investors. Investing in India is never going to be smooth and plain sailing, but over the long-term India is a country that really excites me.’
He tips Jupiter India, which has turned £10,000 into £22,900 in five years.
Two of its biggest picks are Biocon and State Bank of India, the country’s largest biopharmaceutical company and bank respectively. Another is Interglobe Aviation, which owns IndiGo, India’s largest airline. Laith Khalaf, of broker Hargreaves Lansdown, tips Stewart Investors Asia Pacific Leaders, which has turned £10,000 into £16,772 in five years.
One of its biggest holdings is Mumbai- based Mahindra & Mahindra, which manufactures tractors, cars and 4x4s.
U.S. — HEADING FOR ANOTHER CRASH?
SINCE Donald Trump entered the White House in January, U.S. stock
markets have soared by more than a quarter.
If you had invested £10,000 in the Dow Jones, one of the U.S.’s best-known stock indices, when Mr Trump got into power, you would be sitting on £12,500 today.
Just this month, the Dow Jones hit its 70th all-time high of 2017 — a record — after it emerged that Mr Trump’s Republican Party had succeeded in pushing through $1.5 trillion (£1.1 trillion) in tax cuts to boost the American economy.
Some experts expect these cuts, which encourage major international firms to bring back profits stashed overseas, to push U.S. shares up even more.
However, much of the growth in the U.S. over the past year has been driven by a small band of technology and new media companies such as Alphabet, the parent of Google, and eBay.
Experts also warn that U.S. stocks are already vastly overpriced and warn that a so-called ‘correction’ is overdue.
There is also a risk, however small, that the outspoken Mr Trump may provoke a nuclear conflict with pariah state North Korea, which has frequently warned of its willingness to go to war with the world’s superpower. This would, of course, cause the markets to tumble.
Robert Shriller, the Yale University professor who predicted the slumps in 2008 and 2000, says today’s stock market has most of the hallmarks of the run- up to the 1929 Wall Street Crash.
Mr Hughes, of AJ Bell, says: ‘The U.S. has had a storming run in 2017, but a lot of stocks are looking overpriced and it may be the right time for investors to look at other countries.’
If you think the fears are unfounded and U.S. shares will keep on rising, Mr Hollands recommends Powershares FTSE RAFI US 1000 ETF. This fund is like a tracker in that it blindly follows the performance of a basket of stocks.
One of the reasons Mr Hollands likes it is that it doesn’t have huge holdings in expensive tech stocks unlike other U.S. funds.
A £10,000 investment made five years ago would be worth £25,500 today.
SOUTH AFRICA — HIGHLY VOLATILE
REGULARLY hailed as a country with enormous economic potential, South Africa’s stock market has had a rollercoaster 2017.
The Johannesburg Stock Exchange is down 5.2 pc over the year and has been very volatile, experiencing huge rises and falls. South Africa’s economic growth and currency rates have also been erratic.
The Rainbow Nation is beset by political problems, with an increasing number of voices calling for Jacob Zuma, the country’s scandal-hit president, to step down.
All of this has spooked foreign investors, with £3 billion more foreign investment leaving the country than coming in.
Mr Hughes says investors should proceed with caution.
He says a better strategy than backing South Africa specifically is to invest in a broader fund where the manager can pick and choose between countries that are on the up.
Mr Hughes tips Fidelity Emerging Europe Middle East and Africa fund.
Here, your money is spread between a number of emerging economies such as Russia, Turkey and other countries across Africa, which spreads out the risk. That way, if South Africa’s stock market plummets, only a portion of your money is at risk.
The fund, which invests £37.70 in every £100 in South Africa, has turned £10,000 into £14,400 in five years.
Its biggest pick, accounting for 10 pc of all of the money it invests, is Naspers, which is based in Cape Town, South Africa, and is one of the largest technology investors in the world.
In September, Naspers ploughed more than $775 million (£580 million) into Delivery Hero, a German firm that allows people to order takeaways from their favourite restaurants using an app on their smartphone.
SPAIN — CATALAN CALAMITIES
EUROPE’S fifth- largest economy, Spain has been rocked by the ongoing Catalan bid for independence.
On October 1, residents of Catalonia, one of Spain’s wealthiest regions, voted overwhelmingly to become a separate country — even though Spanish authorities declared the referendum illegal.
The resulting furore had a damaging effect on Spain’s stock market, which fell 2 pc immediately after the result.
The Madrid government sacked the Catalan administration and called fresh elections for December 21. But separatist parties gained a majority.
The IBEX 35, Spain’s leading index, has risen 8.6 pc over the course of 2017. But most of this came in a blistering start and share prices have steadily fallen for the past eight months.
Laith Khalaf, of Hargreaves Lansdown, says: ‘Spain still has problems, not least that its economy is stuttering and unemployment is high.
‘ There have been signs of recovery, but it was in a pretty dark place. Investors need to bear that in mind and it still has some way to go.
‘The issue with the Catalan region just goes to highlight the political problems it’s facing — and that could bubble up again which would be disruptive for its stock market.’
For investors who want to keep a toe in Spain, Mr Khalaf recommends a fund that invests more broadly across Europe.
He tips Jupiter European, which invests roughly £10 in every £ 100 in Spain, including in Amadeus IT Group, a major IT provider for the travel and tourism industries.
A £10,000 investment five years ago is worth £21,891 now.