Rise in EV and BEV demand

Market Development: The market rebounded from the sharp deterioration in January, but eventually declined on the back of the outrageous attack on Ukraine by Russia on 24th February.

Fund Commentary
10 Mar 2022

Market Development: The market rebounded from the sharp deterioration in January, but eventually declined on the back of the outrageous attack on Ukraine by Russia on 24th February.

Investors pulled away from market immediately. Whilst the equity market declined sharply, oil and gold prices soared. The WTI Crude Future price rose constantly during February to reach $95 per barrel, a price not seen since 2014.
The market paused to monitor Russia’s invasion into Ukraine, waiting to see what happens between the two nations, as well developments between Russia and the US.

We sold liquid stocks while the market rebounded in order to avoid further possible deterioration. Market interest was concentrated on how European countries will react to Russia, where they are dependent on for a large portion of their natural gas and other energy sources. We believe that the energy policy of the EU may change to cope with the current, difficult situation.

On the other hand, Battery Electric Vehicles (BEV) may increase significantly in Japan since Toyota announced that they will launch a number of BEVs, starting this year. We have been focused on BEV related stocks, and stocks that will benefit from the economy re-opening in Japan.

During the month, Marine Transportation, Iron & Steel and Air Transportation sectors were the top performers of the TOPIX’s 33 industries. On the other hand, Rubber Products, Pulp & Paper and Textile & Apparel sectors were the bottom performers of the TOPIX Index.

The WTI Crude Oil Future rose in February and directly impacted sector performances. Deterioration in emerging markets continued. The Jasdaq Index rose slightly, but the Mothers Index recorded its sixth consecutive decline since last September. Investors might lower their earnings estimates of Japanese companies due to the increase of oil prices and other rising input costs, and as a result, we expect they will probably lower their equity portfolio risk levels.

Market Outlook

First of all, we are very sorry for the people in Ukraine, and for what is happening in the country. Russia’s attack on the largest nuclear power plant in Ukraine was not anticipated, and Russia has become the World’s enemy.

It remains uncertain what will happen next, but what is certain is that oil prices will not stop rising. The EU’s energy policy makers may need to reconsider the use of fossil energy and nuclear power in order to prepare for the possible decrease or suspension of the Russian supply of natural gas.

We still believe that EV demand will continue to rise, led by strong global demand, in order to cope with the rising oil price and a difficult energy supply chain environment globally.

There have been so many shocks causing people and markets to drop to their knees, but they always recover, stand up and walk again.

We have to believe world markets can absorb such shocks and rise again. We will continue to find good Japanese companies and to continuously invest into these possible growth companies. The cash position of the portfolio has been raised in order to meet possible market deterioration and redemption expectations.

Our condolences go out to the people in Ukraine, there are no words to describe how tragically the last few weeks have unfolded.

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 09/03/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.