Opportunities for active stock-pickers, says SNAM
Sompo Japan Nipponkoa Asset Management (SNAM), a partner firm on UBP, assesses opportunities in Japan.
Japan is the third-largest economy in the world and the outlook for Japanese equities is highly favourable, as they are currently attractively priced, on a relative as well as an absolute basis, thus creating opportunities for active stock-pickers.
The launch of “Abenomics” – which consists of monetary, fiscal and structural reforms to beat deflation and stimulate sustainable growth – has acted as a true catalyst for the Japanese economy and investor sentiment towards Japan is evolving.
Thanks to these ambitious reforms, the third arrow of which Prime Minister Abe shot in April with the VAT increase, Japan seems to be recovering from deflation and is steadily shifting towards private sector-led economic growth.
After a great year in 2013, Japanese equities have corrected in 2014, underperforming global equity markets – mainly due to short-term players taking profits; but thanks to the success of the reforms, the case for Japanese equities is becoming ever more compelling as valuations remain low. There remains significant mid-term upside potential in the asset class for fundamentals-oriented long-term investors.
Furthermore, as the outlook on Japan’s economy has generally been conservative, domestic and foreign investors alike have been quite sceptical about Abe’s reforms and are only just starting to place their faith in those policies and price in their benefits.
The market should therefore continue to rise as more investors acknowledge that the Prime Minister is on the right track, and is supported by his government as well as by most of the Japanese people and companies.
Given the resulting attractive pricing and therefore positive outlook for Japanese equities, UBP decided to partner with SNAM (Sompo Japan Nipponkoa Asset Management), a Tokyo-based fund management firm.
Their strategy is based on the conviction that market prices tend to near their intrinsic value over time, although interim discrepancies occur.
They thus seek to benefit from those discrepancies through a long-term and disciplined value approach, with no sector or size constraints, capturing either cyclical catalysts such as production and inventory cycles, or one-off catalysts such as restructuring, M&A and share buybacks.
The 11-member team, led by Kenji Ueno, has delivered a strong track record: since its launch in June 2013, the strategy has outperformed the TOPIX by some 8%, and assets under management have increased to $485m.