Investors back Japanese shares

FUND managers are predicting the recovery in Japanese shares to forge ahead – and they are least confident about a rally in UK stocks.

A new survey revealed 43% of European investment houses think the Nikkei is the best bet in the next year compared with only 4% putting their faith in the UK stock market. Even Latin American stock markets received more support with 5% of managers saying the region will fare best.

The European fund manager poll, conducted by fund analyst Morning Star, found the second most popular regions - Europe, excluding the UK, and Asia were way behind Japan with only 13% of managers naming each as their favourite play.

Investors will be hoping the rising sun recovery is not another false dawn. The Nikkei 225 has bounced back from a low of around 7,600 points in April 2003 to its current 11,309 – a rise of nearly 50%. However, the index hit a peak of more than 39,000 points in 1990.

The slump was blamed on a boom in the Eighties that was followed by crippling debt for Japanese banks and the country‘s ageing population, together with the reluctance of several governments to restructure the economy.

Interest rates were eventually slashed to an effective rate of 0% in 2001 in a bid to kick-start growth. Latest figures show Japan's economy growing at a racy 5.4% a year compared to 4.9% in the US or 3% in the UK.

The Morning Star study also found managers turning more bullish about global stock markets as a whole. In April, 18% had expected the MSCI World Index to rise 10%-15% in 12 months. By May, the figure had grown to 25%.

Managers also thought the boom in the Chinese stock market was not an investment bubble. Only a quarter of investment houses agreed that it was fair to compare the explosion in launches of China-focused funds to the raft of fund launches that surrounded the dotcom boom and bust in 1999 and 2000.

The MSCI China Free index rose 80% in dollar terms in 2003.

Unit trusts focused on China