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Ignore Japan’s election noise, says AA-rated manager

Ignore Japan’s election noise, says AA-rated manager

Recent improvements in the Japanese economy off the back of the Bank of Japan stimulus could be the catalyst for the country’s recovery.

That is according to T Rowe Price’s Archibald Ciganer, who runs the T Rowe Japanese Equity fund.

Speaking to Citywire Selector, AA-rated Ciganer said corporate profits in the country have exceeded all-time highs. 'Investors need to forget macro and election noise, Japanese companies are thriving.

‘With both dividend and share buybacks reaching all-time highs, it is a timely reminder that economic fundamentals and corporate fundamentals are two very different dimensions for investors to consider, especially in Japan.

Ciganer said he was discounting a sudden change in political power as a result of Prime Minister Shinzo Abe's snap election call.

‘As for the upcoming election, it is effectively impossible for Abe to be removed from power, as the opposition simply does not have enough candidates to fill the seats needed to win a majority.

'Regardless of the low-to-negative inflation backdrop, strong corporate fundamentals continue to highlight that the opportunity in Japanese stocks should not be defined by the Japanese economy.’

Improving earnings

However, Ciganer said a strong opposition voice might not be necessarily negative for Japan and highlighted how he is positioning in the current environment.

‘IT and services (24.4%) is one of our two largest overweights, represented by telecommunications holdings such as Softbank (3.9%) and Nippon Telegraph and Telephone (3.2%).

‘We remain bullish on the industry, specifically the scope for improving earnings. Elsewhere in the sector, we are positive on staffing agencies, as signs of a tightening labour market are a major positive.’

Ciganer also holds two machinery companies in the top ten of the portfolio, Miura Co Ltd (2.8%) and Hoshizaki (2.1%).

‘Our second largest overweight is machinery (15.3%), which should benefit from the secular tailwind of the transition to automation across industries globally.

‘Banks remain our largest underweight by a significant margin, with no holdings in the sector. Competition within the sector remains rife, meaning there is an almost unlimited supply of loans at very low rates.’

Over the three years to the end of September 2017, the T Rowe Japanese Equity fund returned 49.98% in Japanese yen terms. This compares with a 34.34% rise by its Citywire-assigned benchmark, the Topix TR over the same time period.

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