Japan veteran says investors 'unfairly obsessed' with roaring yen

Investors have developed an unwarranted obsession with the impact of the soaring yen on Japanese exports says A-rated manager Scott McGlashan, who runs the highly-regarded JO Hambro Capital Management Japan fund. He believes today’s crisis in the Japanese currency is far less extreme than the difficulties it faced in the mid 1990s.

‘Last time this happened was 1995 – 15 years ago – and to get back to its previous peak the yen/dollar ratio would [have to] be $60,’ McGlashan (pictured) said.

‘The pressure exporters are under now is nothing like what we saw 15 years ago.’

Tokyo stocks took a beating this week as investors reacted with scepticism to measures unveiled to curtail the rising yen and its subsequent impact on trade.

The Nikkei Stock Average fell back by around 3.6% to 8824.06 on Monday, plunging to a 16-month low. Export stocks being particularly hard hit due to the yen rising against most other major currencies. Moreover, the news that the Japanese government was expanding its special loan programme was perceived as unwelcome by the market.

However McGlashan, who over the last three years has seen his fund gain 7.6% while the Topix TR has slumped 6.3%, believes investors’ concerns are unfair due to the opportunities that lie in blue chip pricing anomalies.

McGlashan argued: ‘It’s not a completely negative story in Japan - we expect company profits for the year to rise by 50%, which is huge.

‘Profits have quickly crashed in the past but it’s certainly not all gloom in the region. Obviously the yen has been strong not just against the dollar but most other currencies. This is due to a high level of risk aversion in the capital markets and because the most dynamic part of the Japanese economy is exports, making the stock market unhappy.

'A strong yen will cause a squeeze but exporters are not under the same pressure they were 15 years ago.’

Buy opportunities

McGlashan famously advised investors to avoid piling into Japan during his time at Invesco Perpetual in the 1990s. However he now believes the region’s undervalued companies look attractive.

‘Big international blue chips have been sold out of and now we are seeing stocks on price to earnings (PE) ratios of 15 times – everyone thinks Japan trades on 40 times,’ he pointed out.