Graham French buys first Japan stock ever for Global Basics

Graham French, the manager of the M&G Global Basics fund has made his first move into the Japanese equity market in 15 years buying brewing stock Kirin.

French has never owned a Japanese stock in the ten years that he has managed the Global Basics fund

French pioneered what has today become a dominant theme in investment – how to exploit the re-emergence of nations such as China and India on the global stage. Over the decade he has successfully bought into companies on what he calls the right side of the emerging markets divide: ‘whatever emerging markets need, prices tend to go up. For whatever emerging markets produce, prices tend to go down.’

Like many investors French has not been a fan of Japan. Despite occasional flashes the land of the rising sun has been a dismal place for sterling-based investors over the past 20 years.  The economy has struggled with deflation and an ageing population that wants to save not spend, while on the stock market the country has failed to shake off a reputation for not looking after shareholders’ interests.

This year, however, has seen a concerted effort by leading investors to challenge the notion that Japan is a ‘value trap’ – ie, cheap and getting cheaper. Firms such as Martin Currie have described Japan as a ‘strategic opportunity’ with many global, blue chip stocks on the Topix 100 trading at ludicrously cheap valuations.

However the Japanese stock market has missed the bulk of the stockmarket rally over recent months. Over the five months to 10 November the Nikkei 25 has risen 0.6%. In comparison US, European, UK and Asian indicies have all clocked up double digit returns.

French argues he is not buying the Japan story but Kirin, which is restructuring and has recently exploited the strength of the yen to buy a 15% stake in Fraser and Neave, a beverage group in Singapore and Malaysia, which is also his biggest holding in the Global Basics fund.

Although French remains wary of Japan the fact that he and his colleagues are looking at selected opportunities in the country is tremendously significant.