After years of “fits, starts and false dawns”, the tide could finally be starting to turn in favour of the unloved Japanese stockmarket, says Rob Morgan, an investment analyst at Hargreaves Lansdown on FE Trustnet.
There are a “record number” of profitable companies with strong cash positions trading at a discount to their underlying book value. What’s more, with the Bank of Japan (BoJ) embarking “on an aggressive programme of quantitative easing, there is a real sense that it could ignite a rally”.
A fund that could benefit is the Invesco Perpetual Japan Fund. Managed by Paul Chesson, it has a total return of 29.4% over ten years and 12.88% over five years (compared to a 2.6% rise and an 11.48% fall in the index). It’s been hit by a rising yen over the last three years, which has come “close to crippling the competitiveness [of Japanese exporters]”, says Frank Talbot on Citywire.co.uk.
This has hit Chesson’s portfolio, which focuses on large, “economically sensitive” firms in the financial, technological and automotive sectors.
It performs well when the market is rising (in the first three months of the year it outperformed its peers, rising 17.38% as the market rose on signs of a weakening yen). Yet it’s a “risky proposition” – in the second three months of the year the fund dropped 10.58% as the yen strengthened.
But Morgan thinks the BoJ’s plans for money printing could be the catalyst for the nation’s exporters. “If the yen weakens substantially then you could see these stocks going ballistic… in a sustained bull rally I’d expect this fund to be right at the top of the performance table.”
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Invesco Perpetual Japan Fund top ten holdings
| Name of holding | % of assets |
|---|---|
| Mitsubishi Estate | 6.46 |
| Mitsubishi UFJ Financial | 5.64 |
| Nomura | 5.34 |
| Sumitomo Mitsui Financial | 5.33 |
| Konica Minolta | 5.26 |
| Daiwa Securities | 4.98 |
| Hoya | 4.75 |
| Resona | 4.23 |
| Honda Motor | 4.10 |
| Tokyo Electron | 3.93 |