Japanese automotive companies are bucking the trend as they take an increasing market share, accordi...
Japanese automotive companies are bucking the trend as they take an increasing market share, according to Simon Hopkins, managing director Global Fund Analysis.
He says: 'With a pick-up in demand, or at least a pick-up in expectations of demand, the automotive sector in Japan is running counter to the trend of weak industrial production. Year-on-year industrial production has fallen by 1.2% and the yen is in freefall against the US dollar and the euro, while automotive shares have risen by around 3%.'
There are some interesting leading indicators, one of which is the sharp increase in the Australian dollar, according to Hopkins. He says: 'When the Australian currency picks up against the US dollar, it normally means Japanese industrial production is going to pick up. It is an industrial country with no natural resources, so they are imported from Australia.
'Before a period of export, Japan will tend to order resources from Australia. The Australian dollar then goes up and around nine months later industrial production in Japan increases.'
Craig Mercer, investment manager at Aegon Asset Management, is happy to take at least an index weighting to the sector. He says: 'Earnings momentum for automotives is the strongest for all sectors in Japan for the fiscal year.'
Honda has been up 33.43% in yen terms for the 12 months to 13 July, compared to a fall of 20.66% in the Topix index over the same time period. Toyota Motors has had a more difficult time, falling 11.06% in local currency terms over the past 12 months, although the stock has rebounded this year, rising 12.7% since the start of the year, compared to a fall of 3.64% in the index.
Alistair Way, Japanese fund manager at Baillie Gifford, is not enthusiastic about the worldwide automotive sector as it is a very competitive industry with stagnant demand. He says: 'Japan, however, has a competitive advantage and a rapidly growing market share in the US. This is coupled with a modest volume growth in the domestic market.'
Mercer adds that restructuring of companies to cut material costs is going to schedule, which is positive for newsflow. He says: 'Out of the three main players in Japan, Nissan, Honda and Toyota, we prefer Nissan. Its restructuring is exceeding all expectations and is showing potential for sales growth.
'Of the smaller companies, we prefer Mazda Motors, which has a sensible long-term restructuring plan. There may be some negativity in the short term but there will be much more upside. Mazda is also cutting domestic capacity by 25%.'
Way cites Toyota as his favoured play as it is the largest and most profitable business in the sector. He says: 'It is very dominant in its marketplace and its sales in the US were up 20% year on year. It has taken aggressive action to reduce costs and the underperformance of its shares against Nissan and Honda has been overdone.'
In terms of smaller companies, Way favours Fuji Heavy Industries, which owns Subaru. He says: 'It remains a strong global brand and will prove resilient even if the economy slows.'
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