Fund manager Yoji Takeda believes the Japanese economic recovery story is for real and has recently overweighted that country in the RBC International Equity Fund. He also likes South Korea and Taiwan.
Mr. Takeda has been co-managing the international equity fund and has been the lead manager on the RBC Asian Equity Fund since 1994. The international equity fund, which has assets of $115-million, is up 7.26 per cent so far this year. It has had an erratic performance record. It returned 12.95 per cent in the 12 months ended Oct. 31 and 8.16 per cent a year on average over the past three years. But its annualized return over five years is a loss of 4.19 per cent and over 10 years it is a positive 2.61 per cent.
"This time, the situation [in Japan] has dramatically changed," he said. "The corporate sector has finished restructuring so now it is much more profitable" and the balance sheets are much leaner. Also, "the banking sector has finished writing off all their bad debts" and it is expanding again, he said. Furthermore, government reform has accelerated under Prime Minister Junichiro Koizumi. The public for its part is "a little more confident," and added to that is the fact that the employment picture is improving, which helps boost consumer spending.
Mr. Takeda is also drawn to South Korean and Taiwanese issues.
South Korea is a story much like Japan, he said. There were problems in the financial system but those have been dealt with. Now, the focus is on corporate profits, which thanks to some of South Korea's famous corporations, are doing well. The strength in the country's exports is working through to the domestic economy, he said.
About 60 per cent of the Asian fund is invested in Japanese issues and about 23 per cent of the international equity fund.
The international fund is slightly overweight Europe and close to neutral on North America.
Among the various sectors, Mr. Takeda is currently most bullish on the industrials because of its link to capital investment. That follows in part out of his view on Japan.
"The Japanese economy is now operating at full capacity" and it needs to add to that capacity, he said. He is also bullish on Japanese banks, which he notes have gone through restructuring and mergers, and on the Japanese securities business, given the strength of international and domestic interest in the Japanese stock market.
Not surprising then is the fact that one of his favourite stocks these days is Mitsubishi UFJ Financial Group Inc. (8306-Tokyo Stock Exchange). It is Japan's largest bank. Also, it has the most comprehensive product line as well as the best balance sheet of the big three Japanese banks, Mr. Takeda said. It is the second-largest company by market capitalization on the Tokyo exchange.
Canon Inc. (7751-Tokyo Stock Exchange), another pick, has been doing well. The shares hit a 52-week high of ¥7,100 ($68.32) on Monday, having risen from a low of ¥5,130 almost a year earlier. They closed yesterday at ¥6,980. Canon has benefited from the weaker yen because it is very heavily export oriented, Mr. Takeda said. He noted that Canon produces all the laser beam printers for Hewlett-Packard Co., which is also "doing pretty well."
Canon has an impressive record with profits, having posted about a 10-year string of unbroken gains, a rarity in Japan because of the recessions that have swept that country in recent years, he said. Also, Canon's top management "is very well respected; one of the most respected in Japan," he added.
South Korea's Samsung Electronics Co. Ltd. (005930-Korea Stock Exchange) has also caught his eye. It is "by far the largest stock in South Korea and very well known internationally," he said.
Samsung is the world's biggest supplier of memory chips. Its flash memory chips are used in digital cameras and other memory devices, an area that is growing rapidly. Samsung has about a 50-per-cent global market share in flash memory chips, he noted. The company also plays a prominent role in the expanding market for LCD flat panel display televisions. The prices in that sector are weak but that is offset by the fact that volume is almost double last year's, he said.
A yen for Japan
About 23 per cent of the RBC International Equity Fund is invested in Japan. The fund is slightly overweight Europe and near neutral on North America.
RBC International Equity
|ASSET CLASS||International Equity|
|MIN. INVEST (INITIAL)||$500|
|SALES FEE TYPE||No load|
|MANAGEMENT EXPENSE RATIO||2.89%|
Top 10 holdings, as of Oct. 31, 2005
|1||VODAFONE GROUP PLC||2.89%|
|4||ROYAL DUTCH SHELL PLC||2.21|
|6||BANCO SANTANDER SA||1.96|
|8||HSBC HOLDINGS PLC||1.88|
Returns, as of Oct. 31, 2005
© 2007 The Globe and Mail. All rights reserved.
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