Economic policies undertaken by Japan’s Prime Minister, Shinzo Abe, are not working and foreigners are propping up the country’s stock market.
That is according to Stephen Harker, who manages the GLG Japan CoreAlpha Equity fund with Neil Edwards and Jeffery Atherton. The Citywire AA-rated manager thinks the Japanese yen, in particularly, has proven problematic.
‘The message for investors is that Abe has changed things. Our view is that all he's done has trashed the currency and that the same mechanism is working that has worked in the market for a quarter of a century. If foreigners can be induced to buy, then the market goes up, and if they sell it goes down,’ Harker told Citywire Global.
‘Abenomics is a belief system and a lot of people believe in it and that belief has translated into money flows. If the money keeps flowing in then the market will go up, but it is not obvious to me that the underlying situation has been improved by Abenomics. Japan's economy is probably functioning less well than it was three years ago.’
Harker added, along with other developed countries, Japan was facing competition from countries like Turkey, Mexico and Brazil, and would struggle over the next few years to make manufacturing profitable.
Elsewhere, the trio has increased exposure to auto manufacturers, with Honda Motors being the fifth largest holding in the fund at 4.33%. Harker believes Japanese car manufacturers will benefit from the recent VW emissions scandal.
‘I think the Japanese car industry were probably having champagne receptions. VW and Toyota are the two biggest car manufacturers in the world. Toyota ran into trouble a few years back with a product recall in the US, which cost a lot of money.
‘VW is now going through the same crisis that Toyota went through in 2010. It is absolutely brilliant news for Japanese car companies,’ Harker said.
He added diesel engines are predominantly used and manufactured in Europe and India, whereas Japanese car makers focus on petrol engines.
Games manufacturer Nintendo recently slumped by 15% when it announced it was going to delay the launch of its first smartphone game. However, Harker said he managed to profit when the company announced a partnership with e-commerce firm DeNA.
‘Lots of our customers were getting worried about our holding in Nintendo towards the end of last year. It was a classic CoreAlpha investment, it had underperformed the market, it was relatively cheap had a good balance sheet and a proud management.’
‘We started the year with 4.5%, on the day of the announcement we had 4.7% in it and as of today we have 0.3%. Before the collapse we had sold 95% of our holding and we are now underweight. We are benefitting from the fall now,’ Harker said.
The Man GLG Japan CoreAlpha Equity fund returned 120% in Japanese yen terms over the three years to the end of September 2015. This compares to a rise of 102.8% by the Topix over the same timeframe.