By Jane Wallace Cazenove is overweighting the communications and service sectors in its Japanese fun...
By Jane Wallace
Cazenove is overweighting the communications and service sectors in its Japanese fund
The portfolio is also underweight electronics and transport equipment the main exporting industries on concerns over the strength of the yen
Simon Somerville, director at Cazenove Investment Fund Management, said: "The yen is the biggest risk to the recovery story. The Japanese economy is now recovering, and so there are many foreign investors buying the yen and it is strengthening
"In my view, the yen will get stronger until there is a concerted intervention by the Bank of Japan, which will probably be at around the ¥100 to the dollar level. They can't let it get up to ¥80: the economy will collapse again and in any case the US won't let that happen
The fund has a weighting of 9.95% in communications against the Topix benchmark weighting of 7.85%. In services it has an even greater exposure of 10.4% against the Topix's 3.2%. The reason for this position is that most of the so-called 'new Japan' companies are in these sectors. Such companies are relatively young, have agg-ressive business models and younger management. Most im-portantly, according to Caz-enove, they are not saddled with the excess staff, inventories and pension liabilities of the older, more traditional conglomerates
Even though some of these companies are not in the Topix index, Somerville has weighted the fund by some 10% to 15% in the new Japan sector. Somer-ville said that Japanese companies are now more positive as they are beginning to see revenues pick up, to the extent that second-half sales look set to beat first-year results. Those companies that have carried through cost-cutting measures will also see that benefit in profits
He said: "It is no surprise the economy has picked up as the government has done everything it can to help. The government certainly won't pull away from helping now. In fact, I believe that another fiscal stimulus package, although a smaller one this time, will be introduced some time next month
He warned the recovery phenomenon was not spread across the board
New Japan stocks are highly rated but some companies are still suffering. He said: "The whole index is changing. Traditional companies, such as ret-ailers, are having a very hard time
"The economy is being supported by the prop of fiscal packages, which will have to be taken away at some stage
Somerville has moved pharmaceuticals from a neutral to an underweight position against the Topix benchmark index weigh-ting on the basis that those stocks have probably come to the end of their good run. The fund is also still underweight banks with a position of 7.28% against the benchmark's 13.35
The five largest holdings of Cazenove Japanese on 22 September were NTT DoCoMo on 6.48%, Sony on 3.91%, Sharp on 2.63%, Toshiba on 2.21% and East Japan Railway on 2.19
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