Fidelity Japan (FJV) has released annual results to 31 December 2019. The company delivered an NAV total return of +36.6%, more than double its reference Index which returned +14.6%%, and the share price total return was +39.4%.
Review from chairman David Robins
“Holdings in mid to large cap growth stocks were the primary source of the company’s strong outperformance. In particular, positions in electronic component makers and semiconductor related stocks such as Murata Manufacturing that were built up through the first half of the year were among the standout contributors to returns. Holdings in domestic oriented services companies that continued to increase their earnings were also strong performers, as were high quality medical technology names such as Olympus and Sysmex. At a sector level, the company’s underweight exposure to laggard defensive sectors and financials further supported relative returns.
Since the end of the reporting year, the share price continued to perform favourably for a brief period, before being caught up in the global market turmoil sparked by the rapid spread of covid-19 outside China. From 1 January 2020 to 31 March 2020, the NAV of the Company had declined by 22.5% and the share price by 25.1% compared with a fall in the TOPIX Total Return Index of 11.2%.”
“While global growth expectations had improved around the turn of the year, partly as a result of the ‘phase one’ trade agreement between the US and China, all expectations of 2020 being a better year for global trade and growth have been dashed by the rapid spread of covid-19 around the world.
Global supply chains have been badly disrupted by the measures taken to combat the virus, first in China but subsequently worldwide. The pandemic is now also expected to impart a significant demand shock to the global economy. The combination of this supply and demand shock is likely to result in recession, despite both further monetary easing by Central Banks and fiscal expansion by a number of Governments. There is thus, no clear view as to when a recovery may ensue.
In Japan, following the negative impact of the consumption tax rise in the fourth quarter of the 2019 calendar year, the economy probably contracted again in the first quarter of 2020. This would effectively mean that the country has been in recession from the start of the year. Whether the Government’s fiscal expansion and continued monetary easing by the Bank of Japan will be sufficient to offset the impact of covid-19 on domestic growth remains to be seen, but with a negative global backdrop the portents are not positive. In addition, the cancellation of the Olympic Games in July has removed another prop to growth on which the Government was relying.
The Japanese equity market was not looking over-valued early in the year but collapsed in February/March, along with financial markets globally. Whilst continued buying by the Bank of Japan might provide some support, corporate earnings will be severely impacted by a domestic and global recession.”
FJV: Annual results and an update from Fidelity Japan following an excellent 2019