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GLG's Harker: Japan could collapse on huge QE gamble
by Matthew Goodburn on Sep 25, 2013 at 13:10
'Public sector debt is too high and it is still not being addressed. They need to get taxes up and take spending down and what they are doing [with fiscal policy] does not help. The country is wealthy and ageing and they are starting to take money off the old and giving it to corporates.
'The Japanese people are not stupid. This is a smart, intelligent society and those who have the money know they are being taken for a ride.
Harker is also concerned that if the central bank achieves its target of 2% inflation, it will not be able to keep yields on 10-year Japanese government bonds at the current level of 0.8%.
'They are using tax payers money to fund the buying of JGBs. The market will eventually demand a real return and if they get to 2% inflation, bond yields will go to 4%.'
Harker believes the JGB market has been rigged by the government and that sales of them are all pre-planned by the government.
'JGBs were trading at 0.5% so they are using tax payers' money to prop up the bond market.'
The fund's biggest overweight position remains the large banks, at 10% more than the benchmark, while electrical appliances and chemicals account for a 7.5% overweight. Life companies and telcos are the other fund overweights.
The €1.5 billion fund has nothing in property, pharma, food, tobacco or beverages, as Harker believes all of these look expensive under his strict value approach.
A 7.1% stake in Sony at the start of the year has now been reduced to around 3% after a strong run as the yen weakened and a 4% stake in Toyota has also been exited after it too saw a strong run primarily on the back of a weaker yen.
Otherwise, the team has been shunning the autos sector and Harker says the weaker yen has has little discernible impact on either autos or the IT sector, where he has added Canon which has perofrmed poorly over the last year.
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