Insights

Japanese Equities: A Growth Opportunity Video
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Video: Mitsuhiro Yuasa, portfolio manager of the Strategic Japan Opportunities Fund discusses the opportunities available in the Japanese equity market.

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In July, the Strategic Europe Value Fund (EUR I Class) returned +2.88%. At a sector level, the main monthly contributor to alpha was Consumer Staples, mostly driven by strong stock selection, whereas the largest detractor was Health Care.

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The domestic market moved without clear direction in July with large caps rising, while small caps declined sharply during the month. Early in the month, torrential rains and large-scale floods swept through western Japan, negatively impacting the region’s consumption. 

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​As widely anticipated, recent economic data still point to a strengthening economy. After a soft first quarter in terms of growth (+2.2% revised from +2%), real GDP for Q2 rose at an annual rate of +4.1% according to advance estimates which have been released. 

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In July, the Fund reported a loss of -0.94% on an absolute basis. At the stock level the top three contributors during the month were Barco, Valmet and Boozt; whilst at the other end of the spectrum, Akwel, Rieter and Spie were the three main detractors.

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After a dismal June, Chinese equities continued to fall in July as trade tensions between China and the US continued to build. The MSCI China Index lost 2.5% during the month, while the CSI 300 stabilised with a slight gain of 0.2%. 

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​In July, the trade war between the US and China escalated, resulting in the CNY falling to a 12mth low. During the month, the EU finalised a trade agreement with the US. At the same time, Turkey’s central bank refrained from raising rates, spreading risk concerns to Emerging Markets. 

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During the first half of July, the Japanese market declined on the back of concerns over trade frictions and the weakness of the Chinese market. This said, the market later started to recover following strong economic growth in the US and a depreciating JPY against the US dollar, as well as decreasing tensions surrounding trade frictions and fiscal policy announcements in China. 

A Bright Future for Japanese Equities - Watch Video
  • VIDEO

Yutaka Uda, portfolio manager of the EI Sturdza Nippon Growth (UCITS) Fund discusses the opportunities available in the Japanese equity market over the short and long term.

EI Sturdza, Seeking Excellence Across Global Markets

We form exclusive alliances with portfolio managers who are leaders in their sector and have solid, outstanding, demonstrable long-term track records. EI Sturdza provides its portfolio managers with an extensive infrastructure, supported by independent institutional-quality risk management and controls. Allowing the investment teams to focus purely on portfolio management.

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​In June, the Europe Value Fund returned +0.59%*, outperforming its benchmark by 1.28 percentage points. In terms of alpha, the main contributor was Consumer Discretionary, largely due to Criteo. The Fund’s overweight to Consumer Staples also helped. The best performing sectors for the benchmark were Utilities and Consumer Staples; whilst Consumer Discretionary, Materials and Industrials were the worst performing sectors in June.

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In June, the G7 summit, which concluded with no new effective measures to resolve global trade disputes, was in line with market expectations, not supporting the market. Recently, President Trump has been trying to change the global trade order, which he believes unfair to the US, with his behaviour negatively influencing global markets. 

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In June, the trade war between the US and China, the political situation in Italy and the turmoil in Emerging Markets remained a matter of concern. In the US, the FOMC raised the Fed Funds rate to 1.75%-2% during the month, with Mr Powell’s hawkish speech opening the door for two further rate hikes during the second half of 2018.

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In June, Chinese equities were sold heavily following an unexpected announcement by the US regarding import tariffs as well as a free-falling Renminbi. During the month, the MSCI China Index lost 5.2%, ending the first half of the year with a negative return of 1.8%. 

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2018 began well, as the economy benefited from positive momentum off the back of 2017. Nonetheless, the outlook for the second half of the year already depicted concerns, having been - and still being - considerably more opaque, reflecting fiscal stimulus, increased constraints in the labour market and a tighter monetary policy. 

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During June, the Fund reported a loss of -1.09% on an absolute basis, with the Fund’s benchmark ending the month down 0.63%. Takeaway.com was the largest monthly contributor to the Fund’s performance, followed by Spie and Elis. Takeaway.com acquired the operations of Delivery Hero in Switzerland during the period, combining the 2nd and 3rd largest players in the country and making the Company a close challenger of the country’s leader, Eat.ch.

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The Japanese market gained in the first half of June on the back of strong economic data in the US and a depreciating yen. Later in the month, the risk-off sentiment prevailed as concerns about US-China trade frictions rose, triggering a decline of the Japanese market (similar to other markets).

As concerns over an impending trade war between the US and China hots up, one fund manager is upping allocations to Chinese banks and financials.

Current negative sentiment is driving the market down, generating opportunities to buy on weakness, something that attracts Lilian Co, portfolio manager of the EI Sturdza Strategic China Panda Fund with nearly $200m of assets under management. This year she has increased the weighting of financials, including Chinese banks and property companies, to account for over a quarter of the entire portfolio’s allocations. 

President Trump's "Uncooperative Games"

The trade war between the United States and most of its trading partners, China in particular, is reminiscent of John Forbes Nash's "uncooperative games". A mathematician whose career was impacted by schizophrenia, Nash worked on “Game Theory and Outcome”, particularly in relation to the implications resulting from individual optimization of choice. 

By Marc Craquelin
​Non Executive Director of EI Sturdza Funds plc

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The EI Sturdza Strategic Euro Bond Fund launched in 2009, just after the collapse of Lehman Brothers. At the time, cash was a risky investment due to counterparty exposure risk. As a result, the Fund’s profile was constructed to be very cautious: with a duration below 2, investing in Investment Grade issues, with no more than 25% of NAV invested in BBB (i.e. low duration risk / low credit risk). In addition, the Fund was not permitted to invest in subordinated debt.

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