TOKYO (Reuters) - Fidelity International sees further gains in Japanese stocks next year and has started to invest in some value shares selectively, such as some automakers, the asset manager’s Tokyo-based investment chief Takashi Maruyama told Reuters.
There some early signs of bottoming out in the manufacturing sector’s corporate earnings although he is a little wary about further upside in some chip-related shares, Maruyama, head of equities at Fidelity International (FIL) Japan, said late on Thursday at a Reuters Global Investment Outlook 2020 Summit.
He said many manufacturers had cut their full-year profit forecasts, but year-on-year falls in profits are slowing and leading investors to think the worst period could be behind them.
“Over the past weeks, we have noticed some early signs that suggest corporate earnings won’t get any worse, initially in semiconductor-related companies, then electronic parts makers and most recently, in factory automation-related firms.”
Maruyama cited Misumi Group (9962.T), one of the fund manager’s top picks for years, as an example. The Japanese factory automation equipment maker slashed its profit estimates for the business year to March.
But Misumi stocks jumped nearly 10% in less than two weeks since the earnings announcement, because investors have focused on the fact that year-on-year decline in earnings stopped worsening in October-March.
Some shares, notably semiconductor-related firms, have already rallied substantially to such an extent, however, that Fidelity could rotate out of those expensive shares, Maruyama added, although he did not name the companies he recently sold and may reduce.
The big question for 2020, Maruyama added, is whether the global economic recovery will become strong enough to prompt investors to snatch up value shares - namely financials and car makers - which have long been shunned by many investors. Value stocks are those that trade relatively cheaply versus their fundamentals.
“We have already started buying some of the value stocks selectively. No financial names yet but some auto stocks,” the head of Japanese equities unveiled, adding that buying into value companies remains a divisive subject in his investment team.
“In order to get a sustained rally in long-lagging financial stocks, fiscal stimulus will be needed in addition to some stability in global growth, with the 10-year Treasury note yield moving back above 2%.”
The U.S. 10-year yield had hovered below the 2% mark since early August and stood at 1.8% US10YT=RR in late Asian trade on Thursday.
Fidelity International has become overweight on Japanese stocks this month on an anticipated pick-up in corporate earnings and relatively inexpensive valuations compared with international peers.
Maruyama expects the benchmark Nikkei's .N225 core range for 2020 to be 21,500 to 24,500 and the index could rise as high as 25,000. The Nikkei closed at 23,330, its highest in 13 months, on Thursday.
“When the Nikkei nears 25,000, we will take it as an opportunity to take profits. We don’t expect the market will rise continuously.”
Maruyama manages the asset manager’s 1.56 trillion yen ($14.3 billion) Japan equity portfolios as of end-September.
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Reporting by Tomo Uetake & Hideyuki Sano; Editing by Jacqueline Wong