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The twin events Ruffer sees as Japan's shot in the arm

by Sarah Miloudi on Dec 12, 2012 at 09:54

The twin events Ruffer sees as Japan's shot in the arm

The prospect of a shift in Japanese monetary policy may be just the shot in the arm the country needs, Steve Russell and Hamish Baillie have told their investors.

While Japan has seen numerous false dawns, the duo at the helm of Ruffer Investment Company (RIC) cheered the rise in equity markets after a general election was unexpectedly called by prime minister Yoshihiko Noda.

There is also the prospect of a change in stance at the Bank of Japan, where its current head Masaaki Shirakawa is set to be replaced by a more pro-active and pro-stimulus figure.

'If we think of Japan as an anaemic economy then this combination of events could well be the iron supplement that allows oxygen to start to move through the system,' Russell and Baillie said.

'Japanese companies will benefit disproportionately from even a small amount of nominal growth; exporters and banks will likely gain most and this was seen in their performance in November.'

RIC, a Citywire Selection trust, has been a long term believer in Japan's prospects, with 21% of its £277 million portfolio allocated to Japanese equities.

On the general election's announcement, Japanese equities reacted positively and the Nikkei outperformed the S&P by 5.5%, while the yen weakened.

Normally stocks weaken on such news, so with RIC's currency hedged its position in Japan benefited because equity returns were protected from the falling yen.

This will no doubt come as welcome news given that the popular trust has lagged its benchmark over one year.  In the 12 months to December the FTSE World has risen 11.8%, but RIC's net asset value (NAV) per ordinary share has grown by 2.3%.

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