Speculation is rife that the architect of Abenomics may announce an election this year – despite playing down the notion last week – as the country bids to get its economic recovery back on track.
The Bank of Japan (BoJ) cut interest rates into negative territory in January to support credit growth, but domestic equities have suffered this year amid concerns over growth at home and abroad and a lack of clarity over fiscal policy.
A snap election in the lower house of parliament, which would complement the upper house vote in July, is an “interesting possibility” that would make sense in terms of electoral mathematics, Mr Harker wrote ahead of Mr Abe’s comments last week.
But the Japan CoreAlpha manager, alluding to Mr Abe’s original election in 2012 and snap election in 2014, warned: “The most intriguing [risk is] overreach. Boldness is most effective when first unleashed.”
He added: “Could he pull the trick off a third time? The threat from the opposition parties may be small, but there are plenty of ambitious politicians in Mr Abe’s own [party].”
Co-manager Jeff Atherton added last week that there was still a 50/50 chance of a snap election despite Mr Abe’s comments. “I don’t think it’s dead. But the next thing seems to be a supplementary budget [instead], to offset the planned consumption tax increase,” he said.
The BoJ made a surprise move of its own in January when it introduced negative rates, and the decision has hurt Mr Harker’s portfolio.
The £1.6bn fund, run by Mr Harker and Mr Atherton along with Neil Edwards and Adrian Edwards, has struggled this year as a result of its overweight to a banking sector hit hard by the rate cut. Mr Atherton called the decision “unnecessary”.
He said: “Things are pretty good if you look at the jobs market. We don’t agree with it, not because we hold banks, but economically: you’ve got an ageing population of retired savers, so yield is good.”
Bank share prices have slumped year to date as investors fret about the implications of firms being charged interest by the BoJ on some deposits. The CoreAlpha fund has fallen 7.1 per cent this year in sterling terms compared with a 2 per cent fall for the IA Japan sector.
The team have been adding to their holdings in the sector, however, in keeping with their preference for large-cap value stocks. Mr Atherton said they had been adding to Mitsubishi UFJ, Japan’s largest bank, because about 40 per cent of its revenues come from abroad.
As of the end of February, 22.5 per cent of the fund was held in bank stocks, more than three times the 7.4 per cent Topix index weighting.
Mr Atherton said there was disillusionment with Abenomics, particularly the slow pace of reform. But he was upbeat about market dynamics.
“People have [always] been overbearish or overbullish, and they’ve moved right back to being too negative. The amount of foreign selling we’ve seen... is the heaviest quarter of selling since 1984.”
Man GLG’s banking play
22.5 per cent, Japan CoreAlpha’s weighting to bank stocks
7.4 per cent, Topix index’s bank stock weighting.
