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Why Tokyo wins our Olympic gold medal

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Summary

While the Winter Olympics give a good boost to South Korea, we’re staying focused on Tokyo’s 2020 vision

2 min read

What the Olympics mean for your investments

The skiing, curling and bob sleighing over the past two weeks certainly appear to have been positive for South Korea. According to think tank the Hyundai Research Institute, the games could boost the South Korean economy by about $60 billion over the next 10 years. This comes from increased investment in stadiums and roads and the expected boost to tourism.

This is hardly surprising as hosting an Olympic event is often good for business.

The Korea Economic Research Institute says that past hosts of the Olympic Games, including the US, Canada, Russia and Japan, saw an increase in exports and trade after the medals were handed out.

Translating this economic gain to investment opportunities is another matter. Although some benefits from hosting the Olympics last a long time, such as the infrastructure built, many investment benefits fade once the sporting spotlight shines away from the country.

We invest in South Korea through holdings in regional Asian assets and as part of our broader emerging markets exposure. We see the country as an expensive market relative to other opportunities in Asia and the emerging markets more broadly. While the winter games have been good for sentiment and the market generally, it is unlikely to be anything more than a short-term boost. 

 

“Although some benefits from hosting the Olympics last a long time, such as the infrastructure built, many investment benefits fade once the sporting spotlight shines away from the country.”

For us, Tokyo, which will host the 2020 Olympics, is very much the one to watch instead. The games are expected to provide a 1% boost to gross domestic product for Japan, but more importantly the country’s economic growth is underpinned by sound, long-term corporate and financial reforms and a stable, improving economy.

Although Japanese equities suffered during the recent stock market sell-off, our long-term view is supported by this strong economic growth. Japan has recorded eight consecutive quarters of growth – its longest uninterrupted period of expansion since the late 1980s. Inflation is low but positive and heading in the right direction.

We expect the country’s Prime Minister Shinzo Abe to continue his reform programme, which comprises of the "three arrows" of monetary easing, fiscal stimulus and structural reforms – or Abenomics as it has become known. We believe that, for the time being, the Bank of Japan will maintain its monetary policies that are helpful for companies and the financial markets.

In our view, corporate balance sheets are healthy and equity valuations look attractive compared to other major markets. That is why Japan remains one of our preferred equity markets.

It’s fair to say that the athletes aren’t the only winners when it comes to the Olympic Games. But it’s important in our view to maintain a long-term view of the country in question, keep a close eye on the economic fundamentals and focus on quality.


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Get ready for rate rises

Coutts investment portfolios and funds are well positioned for the potentially faster rate rises that central banks are suggesting could come this year.

The minutes from the most recent US Federal Reserve meeting – released this week – revealed optimism among policymakers about the US economy and raised expectations of interest rate rises. The Bank of England, meanwhile, has dropped hints of a UK rate rise earlier than anticipated.

Rate rises are good for the financials sector - a key investment theme in our portfolios and funds - but bad for government bonds, which we have deliberately held a low allocation to for some time. We think corporate bonds and emerging market local currency debt are more attractive for investors than government bonds as they are less vulnerable to rising rates.

It’s worth remembering that interest rate rises are fundamentally a sign of increased confidence by central banks in the strength of the economies they run. The current language coming from those banks is therefore ultimately good news for the economy and for investors.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

About Coutts Investments

With unstinting focus on client objectives and capital preservation, Coutts Investments provide high-touch investment expertise that centres on diversified solutions and a service-led approach to portfolio management. Our investment process is as disciplined as it is creative – ensuring tailored solutions with robust results.

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