JPM Japan trusts back domestic stocks on signs of economic recovery

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Greater conviction in Japan’s economic recovery has prompted JP Morgan investment trust managers Nicholas Weindling and Naohiro Ozawa to “substantially” increase exposure to Japanese domestic names.

The co-manager of the JP Morgan Japan Investment Trust and Japan Smaller Companies Trust believe that prime minister Shinzo Abe can get inflation back into the economy, which would benefit domestic stocks.

Weindling says: “We have increased our exposure to domestic Japan substantially because we are very positive on the new prime minister Shinzo Abe.

“Of all the things that the new government is trying to do the most important is to get inflation into Japan. Japanese individuals have around 55 per cent of their wealth in cash in the bank with zero per cent interest. So if there is inflation they need to start using that money. We think this is what is going to happen.”

As the Japanese consumer spends more this will have a direct impact on domestic facing stocks, adds Weindling. He says: “We believe things will get a lot better in areas of the domestic economy. We are very positive on real estate, banks and consumer discretionary such as retail stocks.”

The JP Morgan Japan and Japan Smaller Companies portfolios currently feature domestic-facing holdings including financial services companies Sumitomo Mitsui and Mitsubishi UFJ Financial, as well as Unicharm and Japan’s largest manufacturer of karaoke machines Daiichikosho.

The managers may be focusing more attention on consumer-facing stocks but Weindling still finds areas of interest amidst Japanese exporting names, particularly those trading with Asia and China.

He cites Japan as a world leader in factory automation and robotics, which could benefit via exporting to China. He says: “If Chinese wages go up we expect their factories to automate. Japan has the number one company in robots called Fanuc, so we are very excited about this.”

However any benefit to the export market in Japan should ultimately feed back into the domestic economy and consumer stocks in turn, says Weindling.

He adds: “The yen is a lot weaker and this is obviously good for Japanese exporters. We think export profits will rise and then Toyota, for example, will pay its workers more.

“Those workers in turn will spend their wages or bonuses in Japan and so you will see all the secondary effects on the domestic economy.”