Fund manager Richard Kaye said there are opportunities for small caps and domestically focused companies as Japanese stocks plunge, confirming a bear market. Kaye, one of the co-fund managers of the Comgest Growth Japan Fund, believes the current market turmoil provides an opportunity to invest in overlooked sectors as foreign investors exit some positions. Topix, a weighted index of Japan’s stock market, has fallen 24% from its July high. It fell 3.2% on Thursday, 6.1% on Friday and 12.2% on Monday, marking the Topix’s worst day since 1987. . “The yen has just returned to normal” Kay believes that the yen’s appreciation is a return to normality rather than an abnormality. “The yen has just returned to normal,” he told CNBC’s Squawk Box Asia on Monday. “Remember, the yen has been trading in the 120-130 range against the dollar for decades. It’s just pulling back now.” This currency change is causing a sharp unwinding of yen carry trades, in which investors borrow cheap yen to invest elsewhere of high-yielding assets, such as U.S. stocks. Kay believes the trend will continue: “The yen carry trade is a thing of the past and we’ll be back in a very different situation.” Yen = 1Y Line The trend in the yen has been negative for Japanese companies that derive most of their funding from overseas, such as Toyota and Sony ) dealt a blow to companies that had previously benefited from the yen’s depreciation to historic lows against the dollar. While big exporters and banks are feeling the pinch, Kay sees hope in other areas of the market. “If you look at all the carnage on Friday, domestic stocks, small caps actually performed well,” he noted. In fact, the MSCI Japan Small Cap Index has fallen 8.6% since July 11, outpacing the MSCI Japan Index’s 14.4% decline in local currency terms. In dollar terms, losses were proportional but smaller, with ETFs such as the iShares MSCI Japan Small-Cap ETF down 2.1% and the iShares MSCI Japan ETF down 8.9% over the same period. The WisdomTree Japan SmallCap Dividend Fund outperformed the iShares ETF. SCJ EWJ line 2024-07-11 “I put a lot of emphasis on the entire small-cap space,” Kay said. “A lot of them are big names in the country. Their revenue is high. They’re really getting beat, and guess what? They’re starting to outperform in this market environment.” He added: “I think that’s where we’re going to We’re seeing a lot of support in the market broadly, and that’s coming from small caps and domestic players.” Kaye cited supermarket retailer Kobe Bussan as an example of a domestic player that could be in the market as the yen strengthens. Show strength. The stock remained in the green on Monday despite a broad market selloff. The stock is also thinly traded in the United States. exporter. He explained that these investors are reallocating funds to Japan from other markets to escape the high concentration of U.S. stocks in a few large technology stocks, or seeking to diversify away from Chinese stocks due to geopolitical risks. As a result, Japan has become the default choice for many investors looking for alternatives, especially after Warren Buffett invested in five Japanese general trading companies: Itochu Corporation, Marubeni, Mitsubishi, Mitsui and Sumitomo. “Hot money is basically saying goodbye now,” Kay said. “When it comes out, we’ll go back to a more rational market and focus on those sectors that we talked about that are doing well and that have been a little hit.” “I’m seeing a lot of money flowing back into the domestic market from these investors, first of all from The industries that I’m talking about that have been hit for two or three years are starting to take a hit,” he predicted.
