GLG Japan's Edwards expecting tech turnaround
The firm's value investing trio were too early into high beta stocks but believe positive re-ratings are imminent.
by Matthew Goodburn on Jan 14, 2013 at 13:32
GLG Japan CoreAlpha Equity's Neil Edwards believes Japan’s unloved technology stocks are finally starting to enjoy positive re-ratings after a difficult 18 months.
Despite strong long term performance, the fund’s contrarian value approach was out of favour for most of last year, and Edwards admitted that technology stocks, along with his other major contrarian value call, banks, were bought too early in their cycle of recovery.
He told Citywire that the December return of prime minister Shinzo Abe with a landslide victory should help to boost the stock market for a little longer due to the new government’s pro-business stance.
Responding to the latest round of quantitative easing in which Abe unveiled a Y10.3 billion (€86 billion) stimulus package, Edwards said: ‘It is bigger than the market had expected, franking that Abe intends to back his words with action.’
But he warned: ‘Japan has been in this situation before and little happened but the new government is market and corporate friendly and if they do succeed in weakening the yen it will be hugely positive.’
While he conceded it was too early to say whether the strategy would ultimately be successful he is encouraged by a renewed determination by Japan’s policy makers to end years of deflation and currency strength.
The trio have been adding a modest level of cyclicality to the portfolio after the market’s latest upturn began in mid-November.
Retail chain Yamada Denki has been bought, and Edwards is cautiously optimistic that the market may make some further gains yet.
‘The [latest rise] feels like it has some legs. We take comfort from the fact that despite a 20% rise in the market, it has still not reached 1x book.
‘It is very clear that Japan is very worried that a strong yen could ruin any recovery and there is a consensus that the Japanese government has prolonged the down cycle with a series of policy mistakes.’
‘We see value in high beta stocks and think our stocks have just started to turn. The market should continue to go higher for now.’