Large-cap growth stocks are primed for a strong run in Japan but market veteran Hideo Shiozumi is holding fire for now.
Citywire AA-rated Shiozumi, who manages the Legg Mason IF Japan Equity fund, said he is starting to shift his thinking when it comes to Japan’s future.
'Over the last two years, and until very recently, I have been saying to clients that Japan is at the second stage of the market. Many investors have been skeptical about Abenomics and a lot of investors are still underweight to Japan and haven’t increased exposure.
'But now I think the market is in the third stage. There are better economic indicators, stronger economic growth and in particular, the landslide victory in the latest election was beneficial.’
Shiozumi told Citywire Selector that investors are beginning to become more optimistic on Japan for the first time in years.
'This year, for the first time ever, the Japanese stock market went up for 16 days straight. As Japan enters the third stage of the market, the overall landscape will become stronger and even large-cap stocks could perform well.
'Because of a stronger economy, large-cap companies will ensure stronger business performance, which has started to be reflected in the stock market. Perhaps now large-cap growth stocks could start to perform well in Japan.'
Despite being positive on Japan's large-cap outlook, Shiozumi is not convinced to take on large-cap bets in the fund if the economy continues to excel.
'I might add them, I’m not sure. If the fund grows bigger then yes, but at the moment large-cap stocks have only performed strongly for October.
'I would like to see profits grow and perhaps that will begin to come through next year. If profits are good this time next year, then I would consider it.
'As a growth investor, even if we do invest in large-caps, the profit might not grow more than 20% in two years. But if we can find those large-cap stocks, then we will invest.
'Some might only have 20% growth for one year, then the next it might come down – we would steer clear of those companies.'
Over the three years to the end of October 2017, the Legg Mason IF Japan Equity fund returned 101.60% in Japanese yen terms. This compares to a 40.87% rise by its Citywire-assigned benchmark, the Topix TR, over the same time period.