Baillie Gifford Japan Investors - BGFD

Share Name	Share Symbol	Market	Stock Type
Baillie Gifford Japan Trust Plc	BGFD	London	Ordinary Share

	Price Change	Price Change %	Share Price	Last Trade
	-1.00	-0.14%	709.00	16:35:01

Open Price	Low Price	High Price	Close Price	Previous Close
709.00	700.00	709.00	709.00	710.00

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Posted at 10/5/2008 11:43 by jonwig A glimmer of a chance to save face in Japan By Merryn Somerset Webb Published: May 9 2008 18:16 \| Last updated: May 9 2008 18:16 At the launch party for the new Spectator business magazine on Wednesday, a banker introduced himself to me. He'd been wanting to meet me for ages, he said. He was a great fan he read all my columns and had done well over the years out of taking some of my advice. I glowed with pride. Then came the fall. But, he went on, he had also lost a small fortune as a result of buying into the Japanese market again on my advice in 2007. What did I suggest he did now? I shifted uncomfortably from foot to foot and prayed for the speeches to begin while the editor of a rival publication, irritatingly standing right next to me at the time, tried not to smirk too obviously. It's always horrible to feel responsible for other people losing money but when it comes to Japan I really feel the pain: my own Isa is stuffed with Japan-related investments. So the fact that the Nikkei 225 was one of the world's worst performing markets last year hasn't exactly brought forward my retirement date. So what did I tell him? That I was buying more. Japan is cheap in a way that no other developed markets are. A good 50 per cent of Japanese stocks trade at less than their book value (the accounting value of their assets), for example. Dividend payouts are also rising. They have always been stingy, when they have existed at all, but over the past three years, the dividends offered by the biggest companies have been rising at double-digit rates. And the economy isn't doing badly at all. In the fourth quarter of last year, Japan grew at an annualised rate of 3.5 per cent and in the first quarter of this year the numbers are expected to show that it grew at around 2.5 per cent. Given that the best the US can do is 0.6 per cent (and that number is bound to be revised down over the next few months), that looks pretty good. Japan is currently the world's fastest growing developed economy and given its links to Asia (twice as many Japanese exports go to Asia than to the US), it is likely to stay so. Even more interesting is that fact that, after well over a decade of falling prices, Japan appears to have finally banished deflation. Food prices are rising (McDonald's has eased the price of a Big Mac up from ¥250 to ¥280) as are energy prices. But these obvious elements aren't the only things that drove core inflation up to 1.2 per cent year-on-year in March. Strip them out, says Jonathan Allum of broker KBC Financial Products, and inflation is still "mildly positive". Better still, wages appear to be rising: the average base salary turned positive in November last year. This is a very big deal. For far too long falling prices have put the Japanese off spending money (why buy something now if it will be cheaper tomorrow?) but if prices are rising and workers have more money in their pockets perhaps they will finally start to loosen their grip on their left-over-from-the-1980s Louis Vuitton wallets. Already, says Christopher Wood of CLSA, Japanese consumers are expecting inflation to be running at 3.1 per cent in 12 months' time. This should do wonders for corporate pricing power (you can't put prices up when people are expecting prices to fall but you sure can when they are expecting them to rise anyway) and for profit margins. The other thing that might work to cheer up the Japanese consumer is the state of the property market. Those who have placed very heavy bets on the UK property market on the basis that "we are a small island and demand is greater than supply" don't like anyone to mention Japan. There, the long and totally insane bubble of the 1980s was justified on identical grounds. Then prices fell for 15 agonising years. The good news for Japanese homeowners if not for our own buy-to-let investors is that they aren't falling any more: residential land prices rose for the first time in 16 years last March. Still, a lot of this has been true for some time and, as my new banker friend reminded me this week, it didn't do us any good last year. Why might it now? The answer is sentiment. Today most people hate Japan. Jonathan Allum points out that the week leading up to March 14 saw the biggest wave of foreigner selling since October 1987. This is good news in the sense that the total capitulation of foreign buyers often marks a turning point for Japan. And so it has again. The market bottomed on March 17 and has been rising nicely ever since it is now up 20 per cent. The point is that sentiment is beginning to turn. Right now very few investors have a stake in Japan. Soon they're all going to want one. So it's best to get in before the rush and the easiest way to do so is via the iShares MSCI Japan ETF. Read Full Thread Reply
Posted at 23/1/2008 19:26 by jonwig FOCUS Japan's persistent bulls look for rally fuelled by M&A, consumer demand By Claire Milhench Patient optimists predict equities could rally by up to 30 pct this year as stock dividend yields exceed those on 10-year govt bond. LONDON (Thomson IM) - Japanese equities could rally by 25-30 pct, and sooner rather than later this year, according to Scott McGlashan, co-manager of the JOHCM Japan Fund. He is one of a few Japanese equity managers to have stayed optimistic on a market that has disappointed foreign investors in recent years, particularly those waiting for consumer-led demand growth. McGlashan bases his bullish outlook on stock dividend yields, which are now higher than the yield on the 10-year Japanese government bond. This has only happened four times since 1960 and on each of the three previous occasions it has led to a significant rally as Japanese investors increase their exposure to domestic equities. 'Assuming the global situation doesn't get worse - and I'm less worried about the US economy than I am about the global banking sector and the like - then we are overdue a rally, and a bounce in the market could be seen any day,' he said. 'The problem is if global investors remain very risk averse because they think the big banks are in danger - given Japan's high foreign ownership, it is then a source of selling shares and holding cash.' The negative case for Japan rests on the macroeconomics, he said: 'Japan's economy is growing very slowly, it's north of recession, but not by a whole way.' As exports have been the strongest part of the economy over the last few years, there are fears that a slowdown in export markets will see a reversal in the growth trend of corporate profits. But McGlashan believes a lot of this has already been discounted in current valuations. McGlashan added that some sort of catalyst would be necessary to fuel the rally, and pointed to the relative bonanza in Japanese terms in mergers and acquisitions as one encouraging factor, with one or two takeovers a week amongst small and mid-sized companies. This has been made possible by a rise in the proportion of shares in free-float and a change in attitudes, facilitating friendly takeovers. 'These hardly ever happened in the past,' he said. 'Last year two of the companies we held were bid for. In my previous 25 years of following the Japanese market I had one takeover!' He hopes to see more this year, and believes that one or two really big deals would encourage investors to reassess the market: 'They would see the very low valuations and the attractions to domestic investors in terms of the income potential and you could get the market re-rated quite quickly.' Hideo Shiozumi, manager of the Legg Mason Japan Equity Fund, is also optimistic about the Japanese market, favouring the consumer-led recovery theme that has disappointed in recent years. He accepts that over the last few years it has been the export-oriented rather than the domestic consumption-oriented companies that have made all the running, but said this was related to continuing yen weakness and emerging market growth. He argued that when global growth slows, the domestic consumer will become increasingly important. And a stronger yen will support this process. 'I expect the yen to strengthen against the dollar to maybe around 90 yen by the end of the year, which would hurt the profits of export-oriented large cap manufacturers, and then we will see attention switch to the domestic-oriented stocks,' he said. 'But it depends to what extent the US economy goes into recession, because of the impact on the emerging market economies.' He thinks that GDP growth will be slow this year, but in the second half, expects consumer spending to pick up as higher wages come through. 'So far this hasn't happened because companies have been using a lot of part-time workers, but now they are hiring full-timers. Also in March, we have the spring wage offensive when companies are likely to raise wages.' His portfolio emphasises companies in the small to mid-cap sectors with consistently strong profit growth, particularly those companies benefiting from the 'New Japan' theme. This describes a structural move away from manufacturing and export-oriented businesses to a more domestic consumption-oriented economy. Shiozumi said such stocks currently make up over 70 pct of the portfolio. These service-oriented companies are found in the internet-related, retail and high-tech sectors, including consumer electronics companies such as MCJ. Shiozumi also cited the example of So-Net M3 (see chart), which provides information on medications online, reducing sales force costs for pharmaceutical companies: 'Over 50 pct of doctors in Japan subscribe to this service, and sales are very strong as it has expanded into the US with information on cancer drugs.' In the retail sector, Shiozumi likes discount store Don Quijote, which sells over 5,000 items in small stores: 'They made quite a big acquisition last year and they are converting those stores into their own.' Meanwhile, McGlashan's portfolio looks at the whole market, but generally draws from the Topix mid-cap. 'These are still very big companies, but there is less broker coverage and institutional sponsorship so you are more likely to find incorrectly-priced shares,' he explained. The portfolio is currently showing a bias towards private railways, which make up 20 pct of the holdings: 'Japan has a very large, profitable passenger rail sector, many with sizeable property portfolios and retail businesses. Companies have started to use the cash flow generated by the regulated railway businesses to invest and improve the profitability of their property and retail operations. And we're seeing quite good growth coming through now.' In many cases these stocks look very undervalued on a price to net asset value basis. Some examples include Tokyu, which runs trains from the suburbs into Tokyo and has an impressive property portfolio, and Hankyu-Hanshin, which is focused on the Osaka/Kansai region, and is seeing synergy benefits as a consequence of a merger. McGlashan added that he has recently been increasing the portfolio's exposure to retailers, although consumption in Japan has been anaemic. 'A lot of these stocks have been very badly beaten down in the market over the last 18 months,' he said. 'In many cases we see really good value here now. These are companies whose businesses may not be very exciting but are continuing to see some growth, and have the potential for improving profitability.' Read Full Thread Reply

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Posted at 10/5/2008 11:43 by jonwig

A glimmer of a chance to save face in Japan

By Merryn Somerset Webb

Published: May 9 2008 18:16 | Last updated: May 9 2008 18:16

At the launch party for the new Spectator business magazine on Wednesday, a banker introduced himself to me. He'd been wanting to meet me for ages, he said. He was a great fan he read all my columns and had done well over the years out of taking some of my advice. I glowed with pride. Then came the fall. But, he went on, he had also lost a small fortune as a result of buying into the Japanese market again on my advice in 2007.

What did I suggest he did now? I shifted uncomfortably from foot to foot and prayed for the speeches to begin while the editor of a rival publication, irritatingly standing right next to me at the time, tried not to smirk too obviously.

It's always horrible to feel responsible for other people losing money but when it comes to Japan I really feel the pain: my own Isa is stuffed with Japan-related investments. So the fact that the Nikkei 225 was one of the world's worst performing markets last year hasn't exactly brought forward my retirement date.

So what did I tell him? That I was buying more. Japan is cheap in a way that no other developed markets are. A good 50 per cent of Japanese stocks trade at less than their book value (the accounting value of their assets), for example. Dividend payouts are also rising. They have always been stingy, when they have existed at all, but over the past three years, the dividends offered by the biggest companies have been rising at double-digit rates.

And the economy isn't doing badly at all. In the fourth quarter of last year, Japan grew at an annualised rate of 3.5 per cent and in the first quarter of this year the numbers are expected to show that it grew at around 2.5 per cent. Given that the best the US can do is 0.6 per cent (and that number is bound to be revised down over the next few months), that looks pretty good.

Japan is currently the world's fastest growing developed economy and given its links to Asia (twice as many Japanese exports go to Asia than to the US), it is likely to stay so.

Even more interesting is that fact that, after well over a decade of falling prices, Japan appears to have finally banished deflation. Food prices are rising (McDonald's has eased the price of a Big Mac up from ¥250 to ¥280) as are energy prices.

But these obvious elements aren't the only things that drove core inflation up to 1.2 per cent year-on-year in March. Strip them out, says Jonathan Allum
of broker KBC Financial Products, and inflation is still "mildly positive". Better still, wages appear to be rising: the average base salary turned positive in November last year.

This is a very big deal. For far too long falling prices have put the Japanese off spending money (why buy something now if it will be cheaper tomorrow?) but if prices are rising and workers have more money in their pockets perhaps they will finally start to loosen their grip on their left-over-from-the-1980s Louis Vuitton wallets.

Already, says Christopher Wood of CLSA, Japanese consumers are expecting inflation to be running at 3.1 per cent in 12 months' time. This should do wonders for corporate pricing power (you can't put prices up when people are expecting prices to fall but you sure can when they are expecting them to rise anyway) and for profit margins.

The other thing that might work to cheer up the Japanese consumer is the state of the property market.

Those who have placed very heavy bets on the UK property market on the basis that "we are a small island and demand is greater than supply" don't like anyone to mention Japan. There, the long and totally insane bubble of the 1980s was justified on identical grounds. Then prices fell for 15 agonising years.

The good news for Japanese homeowners if not for our own buy-to-let investors is that they aren't falling any more: residential land prices rose for the first time in 16 years last March.

Still, a lot of this has been true for some time and, as my new banker friend reminded me this week, it didn't do us any good last year. Why might it now?

The answer is sentiment. Today most people hate Japan. Jonathan Allum points out that the week leading up to March 14 saw the biggest wave of foreigner selling since October 1987.

This is good news in the sense that the total capitulation of foreign buyers often marks a turning point for Japan. And so it has again. The market bottomed on March 17 and has been rising nicely ever since it is now up 20 per cent.

The point is that sentiment is beginning to turn. Right now very few investors have a stake in Japan. Soon they're all going to want one.

So it's best to get in before the rush and the easiest way to do so is via the iShares MSCI Japan ETF.

Read Full Thread

Posted at 23/1/2008 19:26 by jonwig

FOCUS Japan's persistent bulls look for rally fuelled by M&A, consumer demand

By Claire Milhench

Patient optimists predict equities could rally by up to 30 pct this year as stock dividend yields exceed those on 10-year govt bond.

LONDON (Thomson IM) - Japanese equities could rally by 25-30 pct, and sooner rather than later this year, according to Scott McGlashan, co-manager of the JOHCM Japan Fund.

He is one of a few Japanese equity managers to have stayed optimistic on a market that has disappointed foreign investors in recent years, particularly those waiting for consumer-led demand growth.

McGlashan bases his bullish outlook on stock dividend yields, which are now higher than the yield on the 10-year Japanese government bond. This has only happened four times since 1960 and on each of the three previous occasions it has led to a significant rally as Japanese investors increase their exposure to domestic equities.

'Assuming the global situation doesn't get worse - and I'm less worried about the US economy than I am about the global banking sector and the like - then we are overdue a rally, and a bounce in the market could be seen any day,' he said. 'The problem is if global investors remain very risk averse because they think the big banks are in danger - given Japan's high foreign ownership, it is then a source of selling shares and holding cash.'

The negative case for Japan rests on the macroeconomics, he said: 'Japan's economy is growing very slowly, it's north of recession, but not by a whole way.' As exports have been the strongest part of the economy over the last few years, there are fears that a slowdown in export markets will see a reversal in the growth trend of corporate profits. But McGlashan believes a lot of this has already been discounted in current valuations.

McGlashan added that some sort of catalyst would be necessary to fuel the rally, and pointed to the relative bonanza in Japanese terms in mergers and acquisitions as one encouraging factor, with one or two takeovers a week amongst small and mid-sized companies. This has been made possible by a rise in the proportion of shares in free-float and a change in attitudes, facilitating friendly takeovers.

'These hardly ever happened in the past,' he said. 'Last year two of the companies we held were bid for. In my previous 25 years of following the Japanese market I had one takeover!' He hopes to see more this year, and believes that one or two really big deals would encourage investors to reassess the market: 'They would see the very low valuations and the attractions to domestic investors in terms of the income potential and you could get the market re-rated quite quickly.'

Hideo Shiozumi, manager of the Legg Mason Japan Equity Fund, is also optimistic about the Japanese market, favouring the consumer-led recovery theme that has disappointed in recent years. He accepts that over the last few years it has been the export-oriented rather than the domestic consumption-oriented companies that have made all the running, but said this was related to continuing yen weakness and emerging market growth. He argued that when global growth slows, the domestic consumer will become increasingly important. And a stronger yen will support this process.

'I expect the yen to strengthen against the dollar to maybe around 90 yen by the end of the year, which would hurt the profits of export-oriented large cap manufacturers, and then we will see attention switch to the domestic-oriented stocks,' he said. 'But it depends to what extent the US economy goes into recession, because of the impact on the emerging market economies.'

He thinks that GDP growth will be slow this year, but in the second half, expects consumer spending to pick up as higher wages come through. 'So far this hasn't happened because companies have been using a lot of part-time workers, but now they are hiring full-timers. Also in March, we have the spring wage offensive when companies are likely to raise wages.'

His portfolio emphasises companies in the small to mid-cap sectors with consistently strong profit growth, particularly those companies benefiting from the 'New Japan' theme. This describes a structural move away from manufacturing and export-oriented businesses to a more domestic consumption-oriented economy. Shiozumi said such stocks currently make up over 70 pct of the portfolio.

These service-oriented companies are found in the internet-related, retail and high-tech sectors, including consumer electronics companies such as MCJ. Shiozumi also cited the example of So-Net M3 (see chart), which provides information on medications online, reducing sales force costs for pharmaceutical companies: 'Over 50 pct of doctors in Japan subscribe to this service, and sales are very strong as it has expanded into the US with information on cancer drugs.'

In the retail sector, Shiozumi likes discount store Don Quijote, which sells over 5,000 items in small stores: 'They made quite a big acquisition last year and they are converting those stores into their own.'

Meanwhile, McGlashan's portfolio looks at the whole market, but generally draws from the Topix mid-cap. 'These are still very big companies, but there is less broker coverage and institutional sponsorship so you are more likely to find incorrectly-priced shares,' he explained.

The portfolio is currently showing a bias towards private railways, which make up 20 pct of the holdings: 'Japan has a very large, profitable passenger rail sector, many with sizeable property portfolios and retail businesses. Companies have started to use the cash flow generated by the regulated railway businesses to invest and improve the profitability of their property and retail operations. And we're seeing quite good growth coming through now.'

In many cases these stocks look very undervalued on a price to net asset value basis. Some examples include Tokyu, which runs trains from the suburbs into Tokyo and has an impressive property portfolio, and Hankyu-Hanshin, which is focused on the Osaka/Kansai region, and is seeing synergy benefits as a consequence of a merger.

McGlashan added that he has recently been increasing the portfolio's exposure to retailers, although consumption in Japan has been anaemic. 'A lot of these stocks have been very badly beaten down in the market over the last 18 months,' he said.

'In many cases we see really good value here now. These are companies whose businesses may not be very exciting but are continuing to see some growth, and have the potential for improving profitability.'

Read Full Thread

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