INTERVIEW-Fidelity Japan manager more bullish than ever
By Risa Maeda
Thursday August 2, 12:07 am Eastern Time
TOKYO, Aug 2 (Reuters) - A change in management attitudes that has led to unprecedented plant closures and job cuts makes Japanese equities look more attractive than for over a decade, a top asset manager at Fidelity Investments Japan said on Thursday.
``I've been working in this market as an analyst and as a fund manager for a total of 16 years here in Tokyo and over that period I've never been as positive as I am now in the medium- to long-term view,'' Jay Talbot, a portfolio manager at the Japanese unit of Boston-based Fidelity Investments, told Reuters.
Fidelity is the number one U.S. mutual fund firm.
Starting as an industry analyst at a Japanese brokerage firm in 1985, Talbot now manages Fidelity's flagship fund sold here, the Fidelity Japan Growth Fund, whose net assets totalled 226.49 billion yen ($1.81 billion) as of the end of June.
Talbot said he saw more and more Japanese firms going through drastic restructuring, or ``Kozo-Kaikaku'', the Japanese term Prime Minister Junichiro Koizumi uses to describe structural reforms he wants to achieve sustainable economic growth.
It differs from ``Risutora'', the backward-looking restructuring that several firms adopted in the early 1990s by taking on fewer new graduates or reducing other spending to ease pressure caused by the burst of an asset bubble, Talbot added.
Only a handful of companies put an emphasis on raising their return on assets in the past.
But the idea is now broadly accepted in a country used to life-time employment, after the ``catalyst'' of the credit crisis in 1997-1998, when failing creditworthiness and falling share prices forced several big financial institutions and corporations to go bankrupt -- unthinkable until then, Talbot said.
TERRIBLE EARNINGS, ROOM TO IMPROVE
The more efficient management of companies bodes well for earnings trends in the next decade.
``Corporate earnings in Japan are terrible right now. That's why the stock market is down. It's a cycle, it's normal,'' Talbot said.
Tokyo's bellwether Nikkei stock average hit a 16-year closing low of 11,579.27 on Monday but has since rallied sharply, rising over three percent on Thursday to 12,328.93 in early afternoon trade.
``We are probably at the tail end of a cyclical correction,'' he said, adding this was the aftermath of over-investment in the information technology sector in 1999 and 2000.
There is also a ``virtuous cycle of investment'' since Japanese households, holding nearly 1,400 trillion yen of financial assets, are mostly risk-averse, he said. They invest a meagre 2.4 percent of their assets in investment trusts, similar to U.S. mutual funds, and 6.5 percent directly in equities.
``One part of the picture is that you have under-utilised assets in the corporate sector which are starting to be used more efficiently. On the other side, you have under-utilised financial assets that are owned by everyone in Japan -- money sitting in the banks getting zero returns or negative returns.''
FURUKAWA ELECTRIC OUT
As of end-June, the top three stocks in Fidelity Japan Growth Fund were NTT DoCoMo Inc , Toyota Motor Corp and Tokyo Seimitsu Co Ltd , a chip-making system producer.
The electronics sector took a 29.3 percent share, by far the largest, followed by 8.0 percent in brokerages and 7.7 percent in transport equipment makers.
Talbot said the Japanese banking sector suffered from overlending and the lack of a proper yield curve for lending, although he invested in a number of bank shares.
``In the past, banks have been more homogeneous in terms of their prospects, but that's changing,'' he said.
Asked about Japan's top fibre-optic maker, Furukawa Electric Co Ltd , which ranked number three in the fund a year earlier, Talbot said he had sold the stock after realising from late summer last year that the global optical equipment industry was growing at an unsustainable pace.
Furukawa shares hit a record high of 3,710 yen on October 2000. They were at 1,069 yen at the midsession break on Thursday, up 8.53 percent on day on plans to boost output in China.
The return on the fund was minus 22.51 percent in the year to June. Its value at that point was up 35 percent from launch in April 1998, against a 6.44 percent rise in the TOPIX index (^TOPX - news) of all shares on the Tokyo bourse's main section, the fund's benchmark. |
