Schroders’ £158m Schroder Japan Growth trust manager Andrew Rose has said there is something “different” about the latest rally and is swaying towards it not being a false dawn.
Mr Rose, who has covered the Japanese market for more than 30 years, said the biggest difference in markets this time was that major high level changes had occurred.
The manager said a huge monetary stimulus package from the Bank of Japan had been launched following the election of prime minister Shinzo Abe.
He said the forthcoming elections to the upper house in July also looked set to be positive.
But he pointed out that this was the thirteenth time the Japanese market had rallied in excess of 20 per cent and that it was still at a low level compared to other international markets.
“This one is different in some important respects,” he said.
“In the past six months there has been a change in government, a change of regime at the Bank of Japan, and there are chamber elections in July – it’s change at three key institutions.”
The manager said there was a strong possibility that this was not just another false dawn. “It’s not guaranteed, but the chances are better than they have been in a long time,” he said.
Two beneficiaries of this “reflationary” environment have been financials and property companies.
Mr Rose holds the bank Sumitomo Mitsui Financial Group and the insurer NKSJ Holdings in his top 10, but said that overall he was neutrally weighted in financials.
Within that figure, the manager is slightly underweight banks and slightly overweight insurers, which he said had proved to be the wrong way round as banks had unexpectedly rallied.
Mr Rose’s other play has been on the weaker yen. The currency has depreciated by nearly 30 per cent against the dollar since January, reaching its weakest level in more than four years. This has benefited the competitiveness of exports, particularly the fund’s top holding Toyota, which like other auto manufacturers had lagged the international market.
A contrarian investor, Mr Rose increased the fund’s holding in Toyota last year when the yen was stronger.
“It’s moved more quickly than I thought it would – more than 20 per cent in the past six months,” the manager said, adding that while he believes the yen could weaken further still, he expects the pace to slow.
“Japan was one of the most reluctant participants of monetary easing – now it is the most enthusiastic,” he said. “Investors are jumping on the bandwagon, which makes me slightly wary.”
But Mr Rose said that even if the market experienced a downward correction it would not necessarily spell the end for the rally, as markets “don’t always move in a straight line”.
The manager noted there were only eight designated Japan investment trusts remaining. His trust has seen its discount to net asset value narrow to 8 per cent from as much as 14.5 per cent last year.
Monetary boost lifts Japanese economy
The Australian stockmarket has soared in the past 12 months as the MSCI Australia index has risen 28.3 per cent in the year to April 26, beating the MSCI World, S&P 500 and the FTSE 100 indices.
In April, new Bank of Japan governor Haruhiko Kuroda launched a bold stimulus package that doubled the purchase of government bonds.
Research undertaken by the Association of Investment Companies suggests that in the past year the AIC Japan sector outperformed the average investment trust by 8 per cent, while the AIC Japanese Smaller Companies sector outperformed by 12 per cent.
“The improved outlook for export companies, thanks to the weaker yen, will feed directly through to the domestic economy in the form of higher profits, and in turn higher wages,” said Nicholas Weindling, manager of the JPMorgan Japanese investment trust.
Sarah Whitley, manager of the Baillie Gifford Japan trust, agreed there was now a “uniformity of purpose” in Japan to try and solve some of its problems, but warned that “much needs to be done” to make Japan more competitive.
