Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a448687

Graham French buys his first Japan stock for Global Basics

Investment group M&G has bought its first Japanese stock in 15 years, brewer and drinks giant Kirin, a fascinating move that has wider implications for investors looking where to put their money in these uncertain times.

 
Graham French buys his first Japan stock for Global Basics

Investment group M&G has bought its first Japanese stock in 15 years, brewer and drinks giant Kirin, a fascinating move that has wider implications for investors looking where to put their money in these uncertain times.

The Global Basics story

Graham French, manager of M&G’s top performing Global Basics fund, told me on Wednesday that he had just bought a stake in Kirin, the Japanese beer and wine group. This is a significant move as it is the first time that French has bought a Japan stock in the ten years since the fund was launched.

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.’

Investors who bought accumulation units in the fund at launch in November 2000 have enjoyed a stunning return of 232% from this policy. This powerful performance has also seen the fund swell to an enormous £5.2 billion.

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.

Is Japan good value?

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 (Japan’s equivalent of the FTSE  100) trading at ludicrously cheap valuations.

Ruffer , the investment boutique that made investors money during the financial crisis, recently described Japan as the only value market in the world.

Meanwhile, John Chatfeild-Roberts and the fund picking team at Jupiter Asset Management have allocated up to 9% of their investors’ money into Japan in their Worldwide Portfolio .

Back in Japan, not backing Japan

French made it clear to me he was not buying Japan 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. If Japan sceptics can find value in the country I’d suggest private investors should be reconsidering their aversion to Japanese companies. It is enough to make me look again at the three Japan funds and one exchange traded fund (ETF) in our Citywire Selection, for example. (GLG Japan Core Alpha , Invesco Perpetual Japan , Polar Capital Japan and Lyxor ETF Japan ).

What investors such as Ruffer and Jupiter have been waiting for is a devaluation in the yen to help Japan’s blue chip exporters sell their goods and services overseas. However, the Bank of Japan has been singularly unsuccessful in reflating the economy and weakening the yen against leading currencies such as the dollar. Is this the last remaining reason for not investing in Japan?

Time to get out of bonds

Perhaps not. Reaction in the US to the Federal Reserve’s $600 billion round two of printing money, or quantitative easing (QE2), suggests that the Bank of Japan may not need to do anything to achieve a weaker yen. Despite all the noise about the Fed deliberately weakening the dollar to help the US export drive, the fact is the US government bond (or treasury) market has been signalling this week that US interest rates may rise sooner than expected.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Henderson Global Investors: 2014 looks set to be another strong year for UK commercial property


Andrew Friend, acting co-manager*, and Marcus Langlands Pearse, co-manager of the Henderson UK Property Unit Trust (HUKPUT), provide an overview of the key risks and opportunities for the UK commercial property market.

More about this:

Look up the funds

  • M&G Global Basics A Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Jupiter Merlin Worldwide Portfolio Inc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Ruffer Investment Company Ltd
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Polar Capital Japan GBP
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Invesco Perpetual Japan Acc
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • GLG Japan CoreAlpha Eq AA - JPY
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More

  • Lyxor ETF Japan
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet