Chillingworth backs Japan despite market slump

Chillingworth backs Japan despite market slump

Rathbones is maintaining a “significant” overweight to Japanese stocks despite the complication of currency factors, according to chief investment officer (CIO) Julian Chillingworth.

Japanese indices had a strong 2015, with the Topix rising 18 per cent in sterling terms, but the yen is still an issue for investors.

Japanese stocks tend to move inversely to the currency, and a slump in risk appetite has seen the yen retake its place as the ultimate ‘safe haven’ this year – sending it soaring against sterling and thrusting stocks into bear market territory.

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The yen’s strength has partially offset these falls for sterling investors, but Mr Chillingworth acknowledged that investing in Japan had become complicated by currency factors. However, he said he was maintaining his overweight position.

The benefits of shareholder-friendly reforms, including 2014’s stewardship code and last year’s corporate governance code, would continue to feed through and could improve both earnings and dividend payouts, he added.

“We think things will still be okay for the Japanese equity market. The changes taking place at a corporate level are ongoing,” he said.

Currency could become less of a factor in 2016, Mr Chillingworth noted. The yen, which was as weak as 125.6 against the dollar last year, now trades at around the 117 mark.

“Last year you would have had to be clever with the currency and hedge, and then unhedge later in the year,” he said.

“But now I don’t see the yen getting appreciably cheaper against the dollar.”

The CIO favours domestic companies as possible beneficiaries of corporate reforms, rather than the exporters typically affected by currency moves.

Elsewhere in equities, Mr Chillingworth is considering a variety of opportunities in developed markets – particularly as he continues to favour the asset class over fixed income.

He said: “Bottom-up, we believe the US has most in terms of the range of investment opportunities, from technology to consumer durables.

“In terms of value, parts of Europe look cheap but we need some growth to come through.

“The UK is a pretty mixed picture. There is deep value with commodities, and then we have large caps with defensive qualities that aren’t cheap.”

For now, he believes volatile markets will lead investors to favour defensive areas such as consumer durables and leisure.

“In the next six months or so we think people will remain quite nervous, so companies in more defensive areas will continue to do okay,” he said.

The make-up of Mr Chillingworth’s Rathbone Blue Chip Income and Growth portfolio, which he will shortly hand over to co-manager Alan Dobbie in order to focus on his CIO role, partially reflects this belief.

The portfolio had a combined 33 per cent in consumer goods and consumer services as of November 30, according to figures from Rathbones.



Rise in yen against sterling over six months


Topix’s 2015 total return in sterling terms