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Equity CIO reverses out of autos but holds on to hard-hit Honda

Equity CIO reverses out of autos but holds on to hard-hit Honda

Eastspring Investments’ equity chief investment officer has moved to an underweight stance in Japanese autos, but built up exposure to beaten-up household name Honda.

Speaking to Citywire Global, Kevin Gibson said he gradually removed bets after holding a significant overweight in the sector since 2008.

Gibson, who is based in Singapore, is lead manager on the Eastspring Investments-Japan Equity fund but works across the group’s Japan-focused strategies.

Commenting on how the weakened yen had affected markets, Gibson said this had been a major boon for the sector but he believed now was the time to assess other options.

‘In 2008/09, the valuations in the auto sector went down significantly and the post-financial crisis forecast of demand for cars dropped, which provided a great entry point for us. The experts were wrong and demand recovered.

‘The shares performed very strongly and the weak yen also helped to drive performance even higher in the near-term. However, in the current climate, we have opted to bring this down, as we recognise the cyclicality the sector is showing.’

High hopes for Honda

While Japanese companies are performing well off the back of Abenomics, Gibson said he had instead opted to rotate in a seemingly unloved part of the market, notably Japanese multinational Honda.

‘The exception to our stance is Honda, which has gone through a tough time. The company had a number of product recalls, as well as launching a new model of the Accord in the United States, which was not very well received,’ he said.

The carmaker was forced to recall almost 4.9 million cars in early May following a series of airbag malfunctions. Gibson said this has turned investor sentiment quite strongly against the group.

‘This announcement led to a lot of investors to sell down their Honda positions in a very aggressive way, which drove valuations down, and we believe there is opportunity here.

‘This is a good entry point and, despite our above stance on cyclicality, it is showing strong momentum, the risk/reward in terms of valuations is very attractive.

‘Honda is actually the first time we have owned one of the so-called "majors" in the Japanese auto market. As a whole, we have moved to an underweight stance on autos and feel this is the right time to do this given the six or seven years of strong performance.’

This has seen a Honda boosted to the third biggest position in the Eastspring Investments-Japan Dynamic fund, which Gibson works on alongside Citywire AA-rated lead manager Dean Cashman. The stock is now a 5.2% position, which is up from 4.6% at the end of 2014.

Meanwhile, the Eastspring Investments-Japan Equity fund, which Gibson is named as lead manager on, returned 40.5% in Japanese yen terms over the 12 months to the end of April 2015. This is while its Citywire-assigned benchmark, the Topix TR, rose 39.59% over the same period.

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