Japan’s manufacturing purchasing managers index (PMI) climbed to a fresh high in November, as orders and new export orders pick up, indicating that the country’s economy will likely return to growth this quarter after falling into rcession in Q3.
The Nikkei Flash Japan Manufacturing PMI rose to 52.8 in November, from 52.4 in October. This reading, where a figure above 50 indicates economic expansion, is the highest recorded in 20 months.
Commenting on the Japanese Manufacturing PMI survey data, Amy Brownbill, economist at Markit, said: “Latest survey data points to a substantial improvement in operating conditions at Japanese manufacturers. Growth in production accelerated to the sharpest since March 2014, while new orders increased at a marked rate.
A snapshot of the top five performing Japanese equity funds:
"Latest survey data points to a substantial improvement in operating conditions at Japanese manufacturers."
Industrials and energy
Ernst Glanzmann, portfolio manager of the GAM Star Japan Equity Fund, said: “In October, the largest absolute contributor to portfolio performance came from the industrial sector, led by Misumi Group, SMC Corp and Daikin Industries. Investors realised that share prices had dropped too much because current overall demand did not falter as much as had been feared.”
Glanzmann noted that its exposure to the chemicals sector, in form of Shin-Etsu Chemical, rose noticeably in October.
Invesco increased its exposure to the energy sector through new holdings such as Shikoku Electric Power and Chogoku Electric Power. The fund house said that holdings have potential for robust earnings as nuclear reactors have restarted.
Nicholas Price, portfolio manager for Fidelity’s Japan Aggressive Fund, maintained Nissan Chemical Industrial and Kubota Corp, producers of chemicals and machinery, in the fund’s top five holdings.
The Bank of Japan has blamed the recent slowdown in economic activity on weaker external demand, but the situation appears to be improving based on the latest PMI figures.
Brownbill, from Markit, noted, “International demand rose sharply as growth in new export orders picked up to a five-month high. Subsequently, both buying activity and employment rose during the month, with both expanding at the fastest rates in over one-and-a-half years.”