Look beyond Japan’s headline debt numbers, urges Stratton Street Capital’s Andy Seaman

Andy Seaman, executive partner at Stratton Street Capital says investors need to look behind the dire headline debt figures affecting Japan, as the country actually still is a strong creditor nation.

Most people have a reasonable idea of the amount of assets they hold abroad, whether it be a holiday home in a sunny place, or a holding of emerging markets equities. But it is much harder to guess at the position for a whole country, where there may be huge foreign borrowings that cancel out these assets.

Why does it matter what we own or owe abroad? One part of this is that assets abroad generate income that flows in, while liabilities abroad have an ongoing cost. These long term flows will tend to move the exchange rate over the long term, as well as providing revenues or bills that must be paid. Foreign assets can also provide a buffer against demographics, as an ageing country can sell off foreign holdings to pay for retirement. This is more difficult with domestic holdings as in an ageing country there will be more sellers than buyers.

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