Antipodes founder and chief investment officer, Jacob Mitchell, said many investors were asking “is the world becoming Japan?” given interest rates falling to all-time lows in Australia and globally.
“I believe history is rhyming rather than repeating. I don't believe it would be such a bad outcome if the world did become Japan, but I don’t think we’re in the same climate,” he said.
“The biggest change to the environment today is a rise in populism, not lower interest rates.”
With Japanese 10-year government bond yields below 2% for the last 20 years and now below zero, Mitchell said even as rates fell in Japan price to earnings multiples did not continue to expand.
“Lower rates led to an increase in competition and as a result returns on capital fell. In this sense a higher equity risk premium made sense,” he said.
He noted that over the last 35 years the Japanese economy had grown at a relatively comparable rate to the US and Europe as the Yen had strengthened against both the USD and Euro during the period.
“An absence of inflation and low rates has not held the Japanese economy back. In fact, if we adjust for Japan’s aging demographic and consider real gross domestic product per working age population, Japan has outgrown every major economy in Europe and North America over the last 20 years,” Mitchell said.
“The Japanese economy has kept pace with the rest of the world thanks to productivity growth.”
Mitchell said the country had also followed the ups and downs of the broader global cycle despite their low interest rate environment.
“The cycle didn't die, driving predictable rotations between cyclicals (shorter duration equities that did better in the up cycle) and defensives/secular growth (long duration equities that became hiding places during the downturn). That is, style preference oscillated around the economic cycle,” he said.
“If investors preferred to buy and hold rather than move around the cycle, the style that consistently outperformed until 2012 was value; buying low multiple stocks.
“Since 2012 there's been little difference between the performance of growth and value. This analysis is likely surprising to many.”