Just the beginning of a paradigm shift

Market Development: In early December, the Japanese market rebounded from the sharp decline witnessed at the end of November, which arose on the back of concerns surrounding the new Omicron variant. The market began to perceive the new variant to be less serious, and relaxed in terms of COVID infections.

Fund Commentary
19 Jan 2022

Market Development: In early December, the Japanese market rebounded from the sharp decline witnessed at the end of November, which arose on the back of concerns surrounding the new Omicron variant. The market began to perceive the new variant to be less serious, and relaxed in terms of COVID infections.

In mid-December, the market pulled back as the ECB decided to end the COVID support measures, moving towards monetary tightening following the Fed’s decision to accelerate tapering, announced at the FOMC meeting. In late December, Japanese equities rebounded as the US market surged, with Semiconductor names leading the rally.

The TOPIX closed out December at 1,992.3 (up 3.3% MoM) and the Nikkei 225 at 28,791.7 (up 3.5% MoM). 31 out of 33 sectors gained. The top five performers were Marine Transportation, Steel, Warehousing, Mining and Insurance. The bottom five performers were Communication, Precision Instruments, Retail, Utilities and Real Estate. On an annual basis for 2021, the TOPIX gained 10.4% and the Nikkei 225 was up 4.9%. The standout top performer was Marine Transportation, whilst the bottom performers were Utilities and Pharmaceuticals.

The 10-year JGB yield opened the month at 0.057 and continued to decline, following the trend of the risk-off mood triggered by the rise in new Omicron cases, which began late November. On 6th December the yield fell to 0.039, the lowest level since late September 2021. Throughout the month, the bond market was steady on the back of new COVID cases in the US and Europe and a rate cut in China. That said, on the last trading day of 2021, the US and European bond markets fell and the JGB yield rose, to end the year at 0.071.

The JPY against the USD began the month at 113.17, and the risk-off mood remained until late December when the news reported that the US would soon approve oral medicines for COVID. This caused the US Dollar to strengthen as the US yield surged and the Yen weakened from the risk-on mood to end the month at 115.08.

The crude oil price started at 66.18, but as the risk-on mood predominated the market, it continued to rise and ended the month at 75.21.


The Japanese economy has entered the recovery phase. Industrial production in November 2021 rose 7.2% MoM, higher than the market consensus of +4.8% MoM. The Japanese government estimates that industrial production will increase 1.6% MoM in December and 5.0% MoM in January 2022. The government revised up its overall assessment of industrial production from “at a standstill” to “showing signs of recovery”.

On the other hand, in the Economy Watchers Survey of Business, the overall current conditions DI for December 2021 stood at 56.4, slightly higher than November’s 56.3. Conversely, the outlook DI declined to 49.4 from the previous month’s 53.4, reflecting concerns surrounding a COVID resurgence and, due to price hikes on fuel, food and other basic goods, expectations are that consumer spending on services will be curbed.

The new variant – Omicron – is prevailing rapidly, even in Japan. On 12th January 2022, the number of new infections nationwide exploded to 13,052, the highest since 4th September 2021. The National Institute of Infectious Diseases reported that the incubation period of Omicron was 2-5 days, much shorter than the Delta variant of 1-14 days. It was also reported that the new variant appears to be less serious than the Delta variant. On the back of this, we believe the damage to economic activities from Omicron could be much less than the previous variant.

On 12th January, the December 2021 US Consumer Price Index was announced to have increased 7.0% YoY, the biggest jump since June 1982. The FRB should take action to tackle inflation with interest rate hikes and quantitative tightening in the near future. We believe the US CPI could stay over 2.5% in the medium term and 10-year treasury yields should climb over 3% within a couple of years.

The Japanese stock market seems to have started discounting a dramatic change in the economic environment. In early January 2022, the market experienced a sharp rotation to value stocks. High valuation / high growth stocks underperformed notably.

We are taking a very cautious stance on Technology and Semiconductor stocks that surged during the pandemic, as they enjoyed additional demands brought about by remote working habits and supply chain fears. Technology nationalism is prevailing globally, many countries are increasing their Semiconductor capacity. We expect to see a significant overcapacity in 2023.

The current situation on Technology stocks is quite similar to that in 2000. Now is just the beginning of a paradigm shift.

Portfolio Development

The net asset value per unit for the Nippon Growth (UCITS) Fund on a Japanese Yen basis as of 30th December 2021 increased 7.25% compared with that of 30th November, whilst the TOPIX TR Index rose 3.45% during the same period. The Fund added no new names to the portfolio with no stocks sold out.

The Fund continues to be overweight in economically sensitive sectors with cheap valuations such as Trading Companies, Marine Transportation, Iron & Steel and Banking, while defensive sectors such as Foods, Pharmaceuticals, Retail and Utilities continue to be avoided. The Fund takes a cautious stance on IT-related sectors.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
+44 1481 742380


The views and statements contained herein are those of Evarich Asset Management in their capacity as Investment Advisers to the Fund as of 14/01/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.