By Leo Bland Credit Suisse's Japan unit trust has over half of its portfolio invested in the broad ...
By Leo Bland
Credit Suisse's Japan unit trust has over half of its portfolio invested in the broad technology sector in the belief that IT spending is set to benefit these companies.
Credit Suisse New Japan, which is managed by Nick Edwards, has around 55% invested in the broad technology sector which includes telecoms. Key holdings include telecoms firm NTT DoCoMo as well as optical components companies Furukawa and Fujikura.
Edwards said: "Earnings surprises have been very positive this year especially in the technology areas. Of the 49 stocks in the portfolio only Shokoh Fund has revised earnings estimates down for the fiscal year, meanwhile 22 of our holdings, 45%, have revised up. The Japanese economy appears to have stabilised and we are quite optimistic on the outlook for growth next year. There can be no doubt that technology is leading the economy; as in the US during the 1990s, IT spending is driving a recovery in investment."
Edwards quoted estimates from Goldman Sachs which put Japanese real GDP growth at 2.1% for this year and at 3.1% for 2001. Goldman Sachs also sees consumption in Japan rising by 1.1% this year and by 1.4% in 2001.
Edwards added that stocks in his portfolio including Mitsubishi, Asahi Chemical, Konami and Toshiba have recently been benefiting from earnings upgrades. Other companies in the portfolio which have seen recent earnings upgrades include Rohm, Fujitsu, NEC and MCI.
A Japanese Ministry of Finance survey also shows that corporate earnings are strongly recovering, seeing year on year growth of 40.2% compared with 38% in the first quarter. Edwards said that Japanese industrial production in August was stronger than the market expected on growth of 3.3% year on year. He added that more evidence of the strengthening Japanese economy is to be found in the August machinery orders figures which were unveiled last month. Machinery orders rose by 12.5% in August month on month and were up 27.7% year on year.
Edwards added: "Japan's recovery is steadily gaining momentum with strong profit growth. But this and the earnings surprises have not been enough to keep foreigners from selling, especially in the technology stocks which led the 1999 market. The global disillusion with technology has translated into a world market led by daily movements in the Nasdaq which compounds volatility and is leading to the good being thrown out with the bad. When the Nasdaq bottoms we expect Japan to outperform."
Edwards added that the Japanese government has moved to increase the country's technological advancement to improve productivity. It has introduced a voucher scheme which will give adults access to computer skills training. The Japanese government is estimating that 30 million people will enrol and Edwards said that this should mean that the demand for PCs will be fuelled by the training schools and computer students. Computer studies is also to be made compulsory in Japanese schools from next year and Edwards believes the reforms should lead to increased internet usage.
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