michael thomas believes market is through with volatility that plagued january while JPMF's sugimoto predicts japan will outperform in 2003
Martin Currie's Michael Thomas is maintaining a small net long position in his Japan hedge fund despite his belief the market lacks the catalyst for a long-term rally.
Thomas feels the appointment of a new Bank of Japan governor may be a potential driving force for the market, as would a resolution of the Iraq situation in the Middle East. He has seen a volatile January in the Japanese market as a result of the ongoing unwinding of crossholdings.
He said: 'But for aggressive buying by foreigners mid-month, the market would have made larger losses. Several factors instigated the foreign buying. The first was the back- door recapitalisation of three of the four major Japanese banks. This led investors to close some aggressive short positions in the sector. It also benefited many of the low-priced, domestic stocks affected by credit fears.'
Second, there were more mergers and acquisitions, namely Konica and Minolta, and Merck tendered for the remaining stake in Banyu Pharmaceutical.
However, Thomas noted, by the end of January these buoyant features were brought down by investor worry over the threat of war in Iraq.
Thomas said his short positions worked out well for the fund over January, with the portfolio ending the month with a small gain.
He added: 'Long positions that did well included trading houses and real estate stocks. Both of these benefited from the rebound in the banking sector.
'Exporters' share prices fell due to the yen's continued strength. As we anticipate further government intervention in the currency, we added to our long positions in exporters at the end of the month.'
JP Morgan Fleming hedge fund manager Yukiko Sugimoto is bullish on the Japan market, predicting it will outperform other major markets during 2003 and offer investors less downside risk.
Managing some $800m in the JPMF Nippon Neutral hedge fund, which has been running for eight years, and the group's newly launched Leveraged Nippon Neutral, Sugimoto said opportunities continue to be found on both the long and short side.
She said it is becoming ever more apparent which companies are taking shareholders seriously and are likely to be winners in their sectors.
Sugimoto pointed to sectors such as basic materials, steel and chemicals where the industries are not posting growth but consolidation has led to greater pricing power among the survivors. As such, while top-line sales may not be growing, profits are.
Sugimoto, using JPMF's team of 15 analysts located in Tokyo, uses a bottom-up stock selection and aims to keep the funds both market and sector neutral with 60-80 positions on both the long and short side.
While she admits many investors have been repeatedly disappointed in the Japan market, she believes 2003 may be the year of the turnaround when compared to Western markets.
She has predicted Japan returns of around 20% for the year compared to 0%-10% for Europe and the US.
According to Sugimoto, the US and Europe are still working through the collapse of the bubbles that caused their markets to race upwards in the late 1990s, and are still unaware of the full extent of the damage that may have been caused. As Japan has been in a recession for a decade, it makes its downside risks small in comparison to the US and Europe, she noted.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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