At GAM Investments’ latest Active Thinking forum, two of our brightest investment minds discussed political developments in Japan and the value in mortgage-backed securities markets.
Reiko Mito – Japanese Equities
The majority of Japanese corporates have reported another strong quarter, with earnings before tax figures for the September-end quarter circa 17% above consensus estimates. Companies were more conservative on full-year guidance, however, due to rising input costs. Global supply chain constraints continue, although bottlenecks in the automobile industry are expected to gradually unwind in the coming quarters, ahead of other sectors. On the political front, Prime Minister Kishida’s supplementary budget and growth strategy is set to be approved. A tax system supporting future investment in research & development and human capital development is expected, along with plans to enhance digital infrastructure and steps to establish more resilient supply chains. Kishida’s government also appears determined to push for decarbonisation, which should support demand for eco-friendly products, equipment and machinery. In terms of the pandemic, the double vaccination rate in Japan reached 75.5% on 16 November and consumer sentiment has continued to improve as a result.
Tom Mansley – Mortgage-Backed Securities
Although spreads have recovered from the large selloff in March 2020, they are not yet back to pre-Covid levels in the non-agency mortgage-backed securities (MBS) markets, so we still see good relative value in these markets versus other fixed income sectors. Meanwhile, strong technical forces continue to support residential real estate in the US. The supply of housing is still not meeting the strong demand and house prices continue to rise. Moreover, mortgage underwriting standards are still high, and the mortgage foreclosure rate is at multi-decade lows. While outstanding government debt has increased at an accelerating rate recently, households have been working harder than governments and businesses to de-lever their balance sheets, resulting in solid household creditworthiness.
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