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08/06/2009 Japan – Invesco Perpetual’s investment team in Henley confident about future outlook

Amid the current global crisis confidence in the Japanese equity market is beginning to improve – the economic cycle is intact, evidence supporting a

likely economic recovery in 2010 is mounting, and the stock market appears to be too cheap. It is a good time to revisit Japan’s stock markets, Invesco’s investment experts think.

The big picture
Although Japan does not share the West’s structural financial sector problems, its dependence on exports has proven to be a major burden in the current global economic crisis. Yet Japanese equity valuations appear to discount a steeper and more prolonged decline in corporate earnings than is likely. Tentative signs of an economic turnaround are already appearing: Consumer confidence rose in February, industrial production is forecast to increase on the back of lower inventories, and small business confidence is improving. Following passage of a ¥5 trillion stimulus package in March, Japan’s government has committed to further significant measures to help counter the economic slowdown.

Expert insights
With Japanese stocks pricing in all but the worst economic scenarios, Invesco’s investment experts believe that there is a clear opportunity to exploit the mispricing of high-quality companies. “Many Japanese companies will emerge from the current downturn with stronger competitive advantages,” says Paul Chesson, Head of Japanese Equity at Invesco Perpetual in Henley. While Japanese companies have consistently improved their return on equity, stock market valuations reflected by Japan’s broad-market Topix index have continued to get cheaper. The Topix is trading near historic lows, with many companies‘ stock prices at or below book value. “These levels indicate large corporate losses and the perception that companies will be unable to add value over and above the value of their assets in the medium term,” notes Tony Roberts, fund manager of the UK based Japanese Equity Team. “Against this backdrop, we believe that many globally renowned industry leaders with sound balance sheets, strong cash flow and sustainable long-term prospects are clearly undervalued.” The Invesco Japanese Equity Core Fund is significantly overweight blue-chip exporters. The fund management expects these companies to profit especially from a US recovery, which they believe will be among the first globally. Invesco’s investment professionals also overweight financials, which they expect to benefit from rising markets since they are large holders of equity investments.

Performance comparison
The Invesco Japanese Equity Core Fund has been a strong performer relative to its peers, ranking in the first quartile of its Morningstar IM EQ Japan peer group over the 3-month, 1-year, 3-year and 5-year periods. Bottom-up analysis is the key driver of stock selection, with top-down macroeconomic views providing additional direction.

 

Source: ETFWorld.com – Invesco

 

 


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