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Japan offers an Olympic-sized opportunity

Investment Trust Insider on Capital Gearing Trust

Going for gold

By Michelle McGagh 21 Jul, 2021, Citywire Investment Trust Insider

Japan could offer an Olympic-sized opportunity as the undervalued market rides the coat-tails of the global economic recovery.

All eyes are turned to Japan this summer as it finally hosts the postponed 2020 Tokyo Olympics. The start of the games – which have only ever been cancelled during wartime in 1916, 1940 and 1944 – will allow the Japanese market to breathe a sigh of relief…

Citywire A-rated Daisuke Nomoto, manager of the £867m Threadneedle Japan fund, said while Japan has underperformed its global peers year-to-date, ‘we can expect this gap to narrow as the domestic vaccine rollout gathers momentum’…

Nomoto said Japan will be a key beneficiary of the global recovery as it has a high sensitivity to the global economic cycle and will be supported by a synchronised global recovery this year. He also expects that domestic corporate earnings growth will rebound. ‘Over 50% of the MSCI Japan index falls under three sectors: industrials; information technology; and automotive-heavy consumer discretionary,’ he said…

Opportunities abound

In a note on the £152m closed-ended AVI Japan Opportunities (AJOT), QuotedData analyst James Carthew said the value opportunity in the Japanese market looked ‘considerable’.

He said smaller companies – which make up the AJOT portfolio – have lagged by an even greater margin, despite what he described as strong earnings growth and resilient cash generation, meaning the ‘opportunity is considerable’.

‘There are almost 3,800 listed stocks in Japan. AJOT believes a significant number of these are mispriced by virtue of their inefficient balance sheets and holdings of surplus cash or listed securities in particular,’ said Carthew.

AJOT’s returns remain towards the top end of its peer group for this year after a tougher 2020. Over the past 12 months the fund has grown its net asset value by 9%, while the share price total return has been 10.3%.

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