Managers of Japan long/short hedge funds have said government intervention could create investment o...
Managers of Japan long/short hedge funds have said government intervention could create investment opportunities.
Small-cap stocks have outperformed in recent months, according to Rod Birkett, manager of Thames River Capital's Edo long/short Japan fund, due to an imbalance in supply and demand for the larger stocks.
In 1999-2000, the market was dragged up by a few stocks and now is being dragged down by just as few, according to Birkett.
'There is clearly a significant opportunity to buy some of the larger names and short the smaller-cap stocks,' he said.
Michelle Sanders, co-manager of New Star's Japan Hedge Fund, said opportunities exist in Japan 'despite the market looking depressed'.
Well-run firms are being sorted from less able competitors as credit dries up, with bankruptcy risk raising the urgency for good corporate management and shareholder focus.
Sanders' fund has been short regional banks, which may not receive government support, as their demise would pose little political risk compared with larger banks.
New Star also sought catalysts for changes in stock prices, such as new management. Charlie Tritton, head of alternative investment at New Star, said changes are happening at fewer than 5% of companies but can lead to a rapid price turnround.
On the short side, Sanders identified consumer retailers that had overstretched themselves, or had weak balance sheets.
Both Tritton and Sanders were optimistic about opportunities in Japan. Hedge funds invested there could expect better returns than in Europe, Tritton said.
However, there are difficulties involved in trading in Japan, including lack of market liquidity and sell-side research, Tritton said.
Alex Griffiths of Odey Asset Management said he is bearish on Japan in the long term. The Japanese government has been hostile towards hedge funds, last year introducing rules that made shorting more difficult, and Griffiths said there could be a total ban on shorting in two-to- three years.
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