Trust manager warns on Japanese equities

Japanese equities may have already become overbought after a ¥10.3trn (£72.3bn) stimulus package led to a stockmarket rally, according to Martin Currie’s Andrew Graham.

Mr Graham, manager of the £137.7m Martin Currie Pacific investment trust, said there had been a “very aggressive short-term tactical allocation” to Japan from investors ahead of the stimulus announcement by the Bank of Japan on January 11.

“People will look back and start sorting through their Japan holdings to find who is going to benefit from a weaker yen,” Mr Graham said. “We will see some additional stimulus this year as the Bank of Japan has the firepower but the obvious beneficiaries have done well already.”

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In spite of the rally – which has seen the Nikkei 225 index gain 21 per cent in three months to January 14 – Mr Graham said he had not adjusted his Japanese exposure. Japan makes up the highest country exposure of the trust at 20.3 per cent as of December 31.

The manager said: “We have a neutral weighting towards financials but are overweight in Japanese financials. That gave us the added benefit of being geared to the market, so with the very strong rally our holdings performed well.”

The Pacific trust’s portfolio underwent a large reshuffle in the three months to November 30, according to its latest interim management statement, with Fortescue Metals in Australia, CIMB in Malaysia, Sony and Fujifilm in Japan and Hyundai Heavy Industries in Korea cut from the trust.

In their place Mr Graham brought in Hutchison Port Holdings, Australian banking and financial services company Macquarie, and LG Chem, a Korean petrochemicals firm.

This period saw the trust post a share price gain of 7.1 per cent, outperforming its benchmark – the MSCI All Countries Asia Pacific (Japan fixed 25 per cent) index – by roughly 60 basis points.

This outperformance continued a strong run from the trust since Mr Graham took over management in 2011. Since then its share price has gained 9.3 per cent compared with the index’s 3 per cent gain over the same period. However, the trust was still trading at a 15.5 per cent discount to its net asset value last week, a figure which Mr Graham said he felt was too wide. However, he said the discount had been closing gradually as investors seek out Japan exposure.

Elsewhere in the portfolio, the manager said that India, where the investment trust has a 2.3 per cent holding, had fared particularly well following policy reforms. But the trust’s top performer in the three months to the end of November was Orion, a Korean snack food manufacturer which Mr Graham said was expanding its presence in China and Japan.