Nikkei 225 approaching the bottom of its trading range

Market Development: In early June, the Japanese market increased on the back of expectations of reopening following the vaccination progress. Economic sensitive stocks and resource stocks gained as the crude oil price continued to climb.

Fund Commentary
19 Jul 2021

Market Development: In early June, the Japanese market increased on the back of expectations of reopening following the vaccination progress. Economic sensitive stocks and resource stocks gained as the crude oil price continued to climb.

In mid-June, although the CPI in the US rose 5.0% YoY in May, the highest rise in about 13 years, long-term interest rates declined as the market perceived it as temporary. At their FOMC meeting, the Fed suggested that it was likely to bring forward the end of the zero-interest-rate policy to 2023, and the market declined from a hike in the US interest rate.

In late June, the market declined further when a senior Fed official commented that the interest rate increases could start in 2022. Concerns of a slowing economy arose as the treasury yield flattened.

In June, the TOPIX closed the month at 1,943.6 (up 1.1% MoM) and the Nikkei 225 at 28,791.5 (down 0.2% MoM). Out of the 33 sectors, 19 gained. The top five performers were Marine Transportation, Mining, Rubber Products, Pharmaceuticals, and Transportation Equipment. The bottom five performers were Steel, Securities, Nonferrous Metals, Insurance, and Banking.

The 10-year JGB yield began the month at 0.09 and initially experienced little trading activity. Although a catalyst was lacking in Japan, a rise in the US treasury encouraged investors to buy JGB, which then declined to 0.03 at one point in the middle of the month.

When the Fed shifted to a hawkish stance, the JGB yield only moved slightly, following the flattening of the US yield curve and ended the month at 0.05. The Yen against the US dollar began the month at 109.58 and ended at 111.11. The crude oil price opened at 66.32 and continued to rise throughout the month, ending at 73.47.


The Japanese economy remained lacklustre and uncertain, in a zigzag trend. Industrial production in May fell sharply by 5.9% MoM, far below the market consensus of -2.0% MoM. The government estimated that industrial production in June would increase 9.1% MoM, and decline 1.4% MoM in July.

In the Economy Watchers Survey of Business, the overall current conditions DI for June recovered by 9.5 points MoM, after declining by 10.9 points in April and May. In particular, the household-related DI improved sharply by 11.1 points due to the lifting of the state of emergency. This said the overall current conditions DI could decrease again from July as the fourth state of emergency was declared by the government on 8th July for Tokyo, and some other prefectures from 12th July to 22nd August.

Prime Minister Suga also announced that the Tokyo Olympics would be held largely without spectators following a rapid increase in coronavirus infections driven by the Delta variant. The decision is very surprising as vaccinations have been rapidly increasing since mid-May, although they are still far behind the UK and USA.

In Japan, the daily number of infections on 7th July was 2,189; almost 10% of the UK number, and the death toll was only 14. Infections in Tokyo on 7th July was 920, increasing from the recent low of 209 on 14th June 2021, but much lower than the peak of 2,520 on 7th January 2021. People may begin to question Suga’s ability to govern and lead as it appears his decisions could be largely influenced by conservative specialists and mass media.

The election for the governor of the ruling LDP will be held in September 2021 and the general election in the Lower House should be held in October. The government and the LDP are attempting to regain the confidence of the People, implying that a significant economic stimulus package will be announced in September following the Olympic games. Another factor, possibly the most important for the market, is when will the infrastructure investment plans in the US be concluded, and how much will it be worth?

We strongly believe that the Japanese stock market will begin to show a sharp rally from August. The market is currently well consolidated with the Nikkei 225 approaching the bottom of its trading range (27,000-30,000). We expect value-oriented economic sensitive stocks to come back again as a market leader.

Portfolio Development

The net asset value per unit for the Nippon Growth (UCITS) Fund on a Japanese Yen basis as of 30th June 2021 declined 0.1% compared with that of 31st May. The Fund added one new name (Nippon Yusen) 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, Construction, Marine Transportation and Banking, while defensive sectors such as Foods, Pharmaceuticals and Utilities continue to be avoided. The Fund takes a cautious stance towards 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 16/07/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.