Japan school scandal casts shadow over ‘buy Abe’ trade
Stock markets are rarely so bound to an individual as with Shinzo Abe
by:
Leo Lewis
Late last week, as a potentially toxic cloud of
scandal
wafted towards Japan’s prime minister, a few heavyweight global investors began grilling their brokers. Could a fracas over a kindergarten bring Shinzo Abe down? Could Abenomics persist for more than a day without him? How badly would the Topix index take “Abexit”?
Not easy questions, and the brokers’ hasty guesstimates suggest an abrupt end to Mr
Abe’s
premiership would lop as much as 20 per cent off Japanese equities in the immediate aftermath. You can see the logic: it is rare that stock market levels are so intimately bound to an individual.
At its Friday close of 1,565 points, the Topix index is more than 82 per cent higher than it was when Mr Abe came to power in December 2012. The Bank of Japan has played its part in that turbocharging, but the real flood of foreign investment was drawn to the Abe narrative not just for its promise of upheaval, but because for the first time in ages it was made by someone with staying power.
The fear of Abexit, at this point, feels overdone. True, the prime minister is now embroiled in a grimy spat over a cut-price sale of public land to a nationalist kindergarten, and been forced to deny allegations that he made a donation to the school. This week (and this is the reason the big funds are getting anxious) the head of the school will testify in parliament.
But no evidence for the allegations has emerged. The opposition looks too weak to fully exploit the situation. Mr Abe retains the bulletproof appearance that has characterised his leadership and made such striking contrast with the permanent teetering of his five immediate predecessors.
However, the problem with the “buy Abe” trade and the Abe premium underpinning the Topix is that it was always a blunt instrument. For all the breathless 2013-15 Abenomics rally, the steady 2016-17 trickle of evidence that Abenomics is working (rising capex, rising wages, rising corporate profits) has done little to thrill global investment interest. The excitement was never all that nuanced, and the money behind it might not have the patience to see how much of Abenomics would survive Abexit.