BY MITSUHIRO YUASA
In June, the G7 summit, which concluded with no new effective measures to resolve global trade disputes, was in line with market expectations, not supporting the market. Recently, President Trump has been trying to change the global trade order, which he believes unfair to the US, with his behaviour negatively influencing global markets.
Despite increasing uncertainty regarding trade, the US economy is persistently rising, with the Federal Reserve Bank deciding to raise interest rates in June by 25bps, as anticipated.
Investors did not take the trade dispute seriously at first and underestimated its potential impact. This said, they took a negative stance when they realised that the dispute would persist for some time, lowering equity positions in June.
According to the Investment Adviser, the series of trade disputes may not end until the US midterm elections, with the Japanese, as well as other markets as a consequence having to deal with unfavourable macroeconomic conditions and political pressures. In the Investment Adviser’s opinion, President Trump ‘s stance regarding the global trade war is likely to become more extreme towards the end of the year, thereby continuing to negatively impact the global economy. Meanwhile, investment professionals will soon take a summer break, as such markets may be subject to further downturns during the coming months.
The team believe that the US and DPRK meeting in mid June looked factitious to the world, and that the geopolitical threat, which emerged many years ago will not fade until the DPRK give up their stance, which may not happen soon.
The dollar/yen rate, which is an important factor for management to determine capital expenditures, remained around 110 during the month. This said, managers, may be reluctant to increase their capital expenditure for the latter half of the year in light of the above mentioned threats and global uncertainties. The team continue to carefully watch Q1 (April to June) earnings results which will be published soon, sheding light on how management are likely to envisage capex for the rest of the year.
During the month, the Investment Adviser lowered the portfolio’s exposure to certain technology stocks, anticipating that the demand for global chips and robotics may deteriorate over the next 6 – 12 months. At the same time, the team believe that demand for 5G telecommunication investments will not be decreasing in the short term.
Yamaha Motor (7272), which was added to the portfolio in April 2018, manufactures motorcycles and produces motor vehicle engines for Toyota Motor and Ford Motor. The Company also produces motor boats, snowmobiles, golf carts, and electric power generators. Yamaha Motor is so far not known as a robotics company and produces chip-mounter and small, short axis robots. Total sales of these products currently stand at $560m, accounting for 3.4% of total sales. This said, the Company is trying to reach sales worth $950m by the year 2020. In addition to this, the Company is developing software that drives such robots. Yamaha Motor is currently trading at P/E 10x, PBR 1.7x and ROE 17.6%.
The team will maintain the current portfolio for now.
The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 13/07/18 and are based on internal research and modelling.