Japan is telling two different stories -- economics and valuations, said Sonja Laud, head of multi-asset income at Baring AM.
“The economic picture is not encouraging but the earnings story is overcompensating for it. The underlying corporate story and potential improvement in earnings is strong."
Standard Life Investments was generally in agreement. The firm pointed out that the weaker yen has had a significant effect on the profitability of exporting companies. Corporate profits before tax rose by an average of 16.1% during 2012-2014, and are forecast to hit a similar level this year.
BNP Paribas disclosed end-September that its Parvest Equity Japan Small Cap Classic Cap fund increased its holdings in the services and chemicals sectors as it sees potential for an expansion in earnings. PineBridge noted during the same period that the PineBridge Japan Small & Mid Cap Equity fund was boosted by the banking and real estate sectors.
“We expect the equity market to gradually improve after the diminution of current volatility, supported by the US and the still-resilient Japanese economy,” BNP Paribas Investment Partners said.
"We expect the equity market to gradually improve after the diminution of current volatility, supported by the US and the still-resilient Japanese economy."
Blackrock disclosed this week that it retains its overweight position on Japan equities given the “still attractive relative value and continued aggressive stimulus supporting earnings”.
A look at the top performing small and mid caps Japanese funds:
Source: FE Analytics, trailing three years for small and mid cap Japan funds