June 11 (Bloomberg) -- Japan Prime Minister Shinzo Abe’s efforts to revive the economy and fight deflation could lead to further gains in the country’s stocks, according to the head of Temasek Holdings Pte’s fund-management company.
Abe needs to get through next month’s election for the upper house of parliament before he’s able to detail his reform plans, said Manraj Sekhon, chief executive officer of Fullerton Fund Management Co. Abe’s success in pushing his policies could drive corporate earnings higher and more liquidity into equities, Sekhon said at a press briefing in Singapore today.
The Bank of Japan’s bond-purchasing program and other measures helped push the Nikkei 225 Stock Average 28 percent higher this year, the best performance among developed markets worldwide. The yen fell 12 percent in 2013, the second worst among 16 major currencies tracked by Bloomberg.
“It’s early days yet,” Sekhon said. “If Abe gets what he’s doing right, it will be very positive for the equity market.”
There’s still a lot of liquidity in the Japanese market, with funds waiting to be invested, he said.
The Nikkei fell 1.5 percent at the close, retreating from the biggest advance in two years yesterday, after the BOJ kept its policy unchanged and the yen gained. Policy makers refrained from expanding their tools to address bond-market volatility, sticking with an April plan to double the monetary base as they seek to rekindle inflation and stoke growth.
“It shouldn’t surprise people if it goes down a bit” after the rally in the past five months, Sekhon said. “The volatility we have seen is not totally surprising.”
Abe’s economic program, dubbed Abenomics, is seeking to end two decades of stagnation and meet a 2 percent inflation goal. It includes a barrage of deregulation initiatives and $102 billion in stimulus. The BOJ, led by Haruhiko Kuroda, said April 4 it will purchase 7.5 trillion yen ($76 billion) of bonds a month to double the country’s monetary base by the end of 2014.
Those measures could also bolster the Japanese property market, Manraj said.
“Real estate, which has been depressed for a long period of time, could see demand, interest, for all the same reasons,” he said. “Real estate has a potential to be interesting.”
The fund management company is planning to open an office in Japan over the next few months, Sekhon said.
Manraj said that he is also upbeat about prospects for the U.S. as the world’s largest economy shows signs of a recovery.
The country’s payrolls rose 175,000 last month, in line with the average over the past year, according to Labor Department figures released on June 7, while reports this week may show higher retail sales and factory production. The U.S.’s AA+ credit rating outlook was increased to stable from negative by Standard & Poor’s yesterday.
“That is an environment that will be increasingly positive for equities,” Sekhon said. “As growth gets more deeply rooted, embedded, more sustained, you will start seeing that translate into earnings growth.”
The economic growth may give the U.S. Federal Reserve room to initiate ending its loose monetary policy in the third quarter, Sekhon said. Fed Chairman Ben S. Bernanke said last month the central bank could reduce stimulus if there are indications that economic growth will be sustained.
“People will allocate more into equities, which is what they have not really been doing for the last few years,” Sekhon said, adding that the company has “taken a more defensive posture on fixed income.”
Fullerton, wholly owned by Temasek, Singapore’s state-owned investment company, had S$12 billion ($9.5 billion) under management as of March 31. The company focuses on Asia and two-thirds of the assets are owned by institutional investors, including its parent company, Sekhon said.
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