Rob Morgan is the Pension and Investments Analyst at Charles Stanley Direct:
Japan's stock market has surged over the past year. In large part it has been down to one man - Prime Minister Shinzo Abe. Since he took office last December markets and investors have responded well to his initiatives. The most instrumental of his "three arrows" of stimulus has been monetary policy - effectively forcing the Bank of Japan to undertake quantitative easing (QE) on a huge scale. This has served to weaken the yen, which for many years had steadily been growing stronger rendering Japan's exports less competitive.
With profits no longer being squeezed by a strong currency, the impact on Japan's export sector has been profound. Last year, one dollar would buy as little as ¥75. Today, it's closer to ¥100 - it is now Japan's turn to put pressure on its rival exporters, and corporate earnings are estimated to surge nearly 65% this year versus a global average of 8%.
Tony Roberts, co-manager of the Invesco Perpetual Japan Fund believes this is by far the most important of Prime Minister Abe's policies. Ultimately, increased profits for exporters should feed through to rising investment and consumption within Japan's long-stagnant domestic economy too. He views the other two "arrows", as something of a red herring. There is not much room to manoeuvre on fiscal stimulus, and structural reform is a rather vague notion that may take years to implement. However, that is not stopping Mr Roberts being bullish.
He points out the simple fact that corporate profits in Japan are rising much faster than the rest of the developed world yet valuations are essentially similar. To a degree, Japan is bouncing back from one-off factors such as the tragic 2011 tsunami, and of course an ultra-strong currency. Yet Mr Roberts insists there is momentum building. Japan is geared to the health of the US economy, which is slowly improving and there is the possibility the tailwind of a weakening Yen could continue. Given inflation is a long way from becoming a problem in Japan its accommodating monetary policy in the form of QE could easily continue for longer than elsewhere.
Given the bullish stance of Mr Roberts and lead manager Paul Chesson it is no surprise to find this fund is a relatively aggressive option for exposure to Japan. There is a focus on more economically-sensitive sectors such as financials, shipping, electronics and auto manufacturers where the managers expect earnings to recover fastest. They also like the technology sector where supply constraints could end up allowing firms to make larger profits. For example, around half the components in an Apple iPhone come from Japan, so whilst recent poor sales have hurt the sector any pick up would be a boost.
The fund has a focussed portfolio of around 30 stocks, so given its current sector positioning and lack of defensive exposure it is usually close to the top or the bottom of the performance charts depending on the direction of the market. It is therefore a fund we are keen to keep an eye on, though it is not currently part of our Foundation Fundlist of preferred funds across the major sectors.
|
