Mixed month ends with Golden Week

Market Development: The Tokyo markets declined in April, mainly due to US monetary tightening and rising concerns over a global economic slowdown. The Shanghai lockdown was followed by further shutdowns of major cities in China, including Beijing, causing investors increased concern over the deterioration of China’s economy, with the chance that it could drag on the global economy.

KOMMENTAR DES FONDS
18 Mai 2022

Market Development: The Tokyo markets declined in April, mainly due to US monetary tightening and rising concerns over a global economic slowdown. The Shanghai lockdown was followed by further shutdowns of major cities in China, including Beijing, causing investors increased concern over the deterioration of China’s economy, with the chance that it could drag on the global economy.

The TOPIX Index declined, but its deterioration narrowed towards the end of the month, supported by the depreciation of the JPY against the USD, as the Bank of Japan decided to maintain monetary easing for the time being.

Japan’s industrial production in March increased slightly for the second consecutive month. Eight out of 15 industries increased. The automotive industry dulled on the back of a number of factories shutting down following an earthquake in the western part of Japan.

On the contrary, the semiconductor manufacturing industry increased significantly as the issue of material shortages eased as a result of the peak of new COVID infections throughout Southeast Asia.

According to the Ministry of Economy, Trade and Industry, April numbers are expected to rise 5.8% YoY based on its forecast survey. That said, the survey raised concerns that economic activity restrictions in China will be widened, prolonged and expected to fall short of the forecast.

Investors were generally quiet in late April as the “Golden Week” of holidays began, and the announcement of financial results started at the beginning of May.

Market Outlook

The market has begun to discount the global economic slowdown, triggered by increased commodity and logistic costs, pushing inflation and further US rate hikes to cool down domestic price hikes. The FRB decided to raise the rate by 50bp at the May meeting, softer than market expectations.

In London, on a series of foreign visits, Prime Minister Kishida commented that he has a number of ideas on how to increase investment opportunities for Japan, that would total more than JPY 1,000 trillion ($7.7 trillion). He may expose more flexibility to the NISA, a Japanese ISA. PM Kishida and the LDP have a high chance of winning at the Lower House Elections in July.

PM Kishida is filling his time with foreign visits in order to bolster his presence amongst Japanese citizens prior to the election, and using the ongoing situation between Russia and Ukraine as proof of the Government of Japan’s ability to navigate a confusing global political setting.

In the meantime, the current Government may have to think about Japan’s damaged balance sheet. In this context, the Government may begin to talk about tax reforms after the Lower House elections. We will continue to maintain the current portfolio for the time being and carefully watch the domestic and global economy.

Portfolio Development

We sold high valuation stocks such as JTOWER (4485) and GMO Financial Gate (4051), whilst we bought KOSE (4922) and Pan Pacific International Holdings (7532) and added to our existing I-ne (4933) position. Pan Pacific operates discount chain store Don Quijote. Kose and I-ne are manufacturers and retailers of cosmetics and beauty care products; companies that may benefit when Japan lifts restrictions for foreign visitors.

As always, we invite investors, or prospective investors in the Strategic Japan Opportunities Fund to discuss the opportunities with the investment team if they would like to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact Adam or visit the Fund Page >

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 10/05/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.