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Winterflood sizes up Japan discounts
Widening discounts in the Japanese investment trust sectors could put investors in a good position to benefit from a market rally, Winterflood Securities has said.
Simon Elliott, head of research at Winterflood, said every trust in the Japanese sectors had underperformed benchmarks over the past 12 months.
Mr Elliott said the outlook for Japan remained poor, particularly with the yen strengthening and demand for exports diminishing.
“The performance of the equity market has reflected this outlook, and the Topix [the Tokyo Stock Price index] recently fell to 25-year lows.
“In 2008, the Topix was down 41 per cent, its worst-ever post-war year, although the currency movement cushioned this fall for sterling-based investors, with a positive sterling-based return of 1 per cent.”
But Mr Elliott said fewer discount-control mechanisms for Japanese trusts meant there was less control over how wide discounts eventually went out.
He said: “When the market turned in 2003, discounts narrowed from roughly 20 per cent, and the sector traded on a premium in late 2005-06. Wide discounts, therefore, provide an opportunity for significant outperformance when market conditions improve.”
