Old economy sectors, such as industrials and resources, are performing well in the Japanese market a...
Old economy sectors, such as industrials and resources, are performing well in the Japanese market as companies tap into new economy business.
The Toppix non-ferrous metals index has returned 78.81%, in sterling terms, over the year to 4 December 2000 while the glass and ceramics sector has returned 74.95% and the oil and coal sector, 44.62%.
Alistair Way, fund manager on the Japanese equities team at Baillie Gifford, says many have been surprised that old economy companies have been at the forefront of the new economy in Japan.
He says non-ferrous metal companies now have thriving optical fibre divisions within their businesses, which are involved in different elements of wave-division multiplexing (WDM). Way says there has been global enthusiasm for WDM technologies, which increases the capacity of fibre-optic cables and allows more information to travel down them. Investors realise Japanese companies have been at the forefront of this, he says.
Way gives the example of Furukoma, a cable company which he says has emerged as a world-leading supplier of pump diode lasers. He adds Nippon Sheet Glass has performed well because of its involvement in micro-lenses.
Nippon Sheet Glass, listed on the Nikkei 225 index, has returned 220.72% in sterling terms over the year to 4 December 2000. Baillie Gifford is underweight in non-ferrous metals as the shares have already performed well and P/E valuations have now grown so high.
Way says Furukoma's perspective P/E for next year is 47 times.
Adrian Hickey, the investment manager on the Japan desk at Edinburgh Fund Managers, agrees that traditional old economy companies are achieving growth from their involvement in WDM technology.
Hickey says this technology is more important to the present success of these companies than the attempts to restructure their traditional old economy business.
Hickey says: "Nippon Sheet Glass is an example of an old economy Japanese company which is being driven by new economy ideas. It has looked at its business structure and reinvented itself. Sheet glass is a major part of Nippon's sales, but not its profits. The WDM disks are the growth part of the business."
Sumitomo Osaka, a cement company, is also a top performer in the Nikkei 225 index, having returned 258.58%, in sterling terms, over the year to 4 December.
According to Hitchley, while other cement companies are not performing well due to over-capacity, Sumitomo Osaka is profiting from its involvement in WDM technology. Hitchley says Sumitomo Osaka's share price has risen from ´130 to ´470 since February of this year.
Way says the 12 month outlook for the glass and ceramic index is positive, although its performance is highly contingent on the US, where there are large WDM players such as Nortel.
He says there is short-term concern based on the Nasdaq because the share price of WDM companies have done so well that any disappointment could lead to a large drop. Baillie Gifford is overweight in the glass and ceramics sector.
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