100 Club: Aberdeen manager eyes Japan’s ’battered’ carmakers

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100 Club: Aberdeen manager eyes Japan’s ’battered’ carmakers

Japanese carmakers and component suppliers are looking attractive as weak sentiment drives some valuations to record lows, Aberdeen manager Kei Okamura has suggested.

Mr Okamura, who works on the 100 Club Aberdeen Global Japanese Equity fund, said that while he was “generally comfortable” with the portfolio’s positions in these areas, the recent strength of the yen had dented sentiment for exporters.

Over one year the yen has risen by some 23 per cent against the dollar. On July 29 the Bank of Japan announced an extension of its exchange-traded funds purchasing policy, which while disappointing markets, did not hamper the yen’s strength.

The resulting market moves, the manager noted, had seen some names in the sectors recently hit “historic lows”, prompting questions over whether to increase positions.

“There have been some sectors that have been battered,” he said.

“Automakers and components suppliers enjoyed a good run as a result of Abenomics. We have been invested in our auto names for longer than that.

“Now, because the underlying market has reversed because of the currency, we are seeing some of our names get hit hard because of negative sentiment to the industry.”

While he stressed that such companies in the fund - which had a 4 per cent exposure to Toyota at the end of June - had sound fundamentals as well as having developed a global manufacturing base to create a “natural hedge against such currency risks”, Mr Okamura suggested now could be a time for some to top up.

“We are starting to see some of these names at historic lows,” he said. “Is this the right time to top up or not?”

Meanwhile the manager - who added to some positions following Brexit vote volatility but declined to state which ones - is closely monitoring other sector-specific developments.

He noted that the team, which has “traditionally been underweight financials”, remained cautious. This was due to a difficult macroeconomic backdrop, persistently low corporate loan demand and the fact Japan had an “overbanked industry that has created cut-throat competition.

However, Mr Okamura continued to favour some financials in niche fields, with the sector making up 14.6 per cent of the fund at the end of June.

“We hold names like Suruga Bank that has a strong consumer loans business and a good track record of keeping credit costs in check,” he said.

“Other names are within diversified financials such as Japan Exchange Group that is pretty much a monopoly operator of the Tokyo and Osaka stock exchanges, as well as real estate names like rental homes builder Daito Trust that continues to operate a profitable construction business.”

Other sectors that have attracted his attention include healthcare, which made up nearly 10 per cent of the portfolio at the end of June.

He noted there were “near-term risks with respect to government drug pricing” because of constrained fiscal balance sheets in markets such as US and Japan.

“Although this is not a new issue, the topic has been brought back to the centre stage as a result of the election discussions going on in the US,” the manager explained.

According to FE Analytics the fund has returned some 51.8 per cent over three years, compared with a 34.6 per cent return from its peer group, the IA Japan sector.