Managers sit tight on Japanese stocks

Few asset managers announced changes to their portfolios as a result of the Japanese earthquake and subsequent tsunami.

Volatility hit funds that had invested in Japanese stocks or shorted the currency. Stocks fell and the yen rose to record highs in anticipation of a massive repatriation of money to pay for the disaster.

However, government bond prices declined over the week after the quake, leaving investors who shorted the market in profit. The Japanese government is likely to increase its debt burden to help cover the costs of the disaster. (article continues below)

Ana Cukic Armstrong, the joint managing director of Distinction Asset Management, says the company has bought Korean won and non-deliverable forward orders for Chinese renminbi in its multi-asset portfolios to reflect potential upcoming strength in those currencies against many developed world currencies, including the yen.

“Longer term, the shock to the Japanese economy may prove to be the catalyst for an aggressive quantitative easing of monetary policy,” she says. “We also expect an eventual monetisation of Japan’s government debt will become necessary.”

DWS Investments has reduced all overweights in Japan within its global fund range to neutral. Lilian Haag, the manager of the DWS Japan Opportunities fund, has sold 10% of the fund’s portfolio to build a cash position.

The Japan team at DWS has sold stocks because it was worried more bad news may trigger panic selling.

Several asset managers with large positions in Japan, including Ruffer and Artemis, were unavailable for comment.

The £259m Ruffer Investment Company held 23% of its portfolio in Japanese stocks at the end of February, according to its factsheet.

Three of the investment trust’s five largest equity holdings are in Japan, which constitutes the trust’s highest regional investment.

The trust’s top equity holding at 4.1% was a Japanese insurer, T&D Holdings.

The February factsheet of the £873m Artemis Strategic Assets fund shows William Littlewood, the manager, had shorted Japanese government bonds across 47.3% of his portfolio and held a 16.7% short on the yen.

Large Japanese manufacturers with regional plants, local railway operators and retailers have felt an impact.
Insurance stocks worldwide plummeted initially on fears they would have to pay out large sums to cover the costs of the disaster, although they later recovered.

However, the oil price rebounded. Nuclear power’s standing as a competitor to oil was temporarily affected by difficulties at Japan’s tsunami-hit nuclear facilities.

Many fear the disaster could damage Japan’s chances of economic recovery, although government spending may ease this.

Rises in construction stocks support the view that large rebuilding projects may create opportunities for some companies.