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As Japan Rallies, Top Q1 Japanese Picks of T. Rowe Price

Holly LaFon

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T. Rowe Price’s Japan Fund is geared toward “long-term growth of capital through investment in the common stocks of companies located, or with primary operations, in Japan.” With $218.2 million in net assets, the fund has a year to date return of 21.75% against its benchmark TOPIX Index’s gain of 19.25%. The stock market of Japan has performed exceedingly well in recent months due to policy changes of new prime minister, Shinzo Abe. T. Rowe Price in their first quarter commentary explains:

“Japanese stocks surged in the first quarter and outperformed all other major developed markets in local currency terms. Japanese shares have now experienced gains for seven months in a row, their longest streak in seven years, and have risen over 50% in local currency terms (by one measure) off their June 2012 lows. A key factor driving the gains has been the sharp drop in the yen engineered by the new government of Prime Minister Shinzo Abe. Abe has pushed a change of leadership for the central bank, which has announced plans for aggressive monetary easing designed to break Japan's cycle of deflation, or a persistent pattern of falling wages and prices. The declining yen has also boosted the competitive position of Japanese exporters, although it has reduced returns for foreign investors.”

M. Campbell Gunn, an Oxford University graduate, has managed the Japan Fund since 2003. The top new selections in the 92-stock fund in the first quarter were Central Japan Railway Company (TSE:9022), Toshiba Corporation (TSE:6502) and East Japan Railway Co. (TSE:9020).

Central Japan Railway Company (TSE:9022)

T. Rowe Price purchased 4,270 shares of Central Japan Railway Company in the first quarter. Central Japan Railway is a railways business founded in 1987.

In fiscal 2013, the year ended March 31, 2013, had a 5.1% increase in operating revenue to 1.59 billion yen, and net income soared 50.6% to 199.98 million yen. Its forecast for fiscal year 2014 includes a 0.8% operating revenue increase to 1.598 billion and a 26.9% net income increase to 145 million yen.

The company also plans to maintain its dividend at 110 yen per share for fiscal 2014.

Toshiba Corporation (TSX:6502)

T. Rowe Price purchased 533,000 shares of Toshiba Corporation in the first quarter, a 1.3% weighting in the Japan Fund portfolio. Toshiba is a high technology manufacturer and marketer founded in 1875.

In Toshiba’s third quarter of fiscal year ending March 2013, it made net sales of 1.36 trillion yen, a decrease of 84.3 from the previous year, due to weakness in its Digital Products segment and LCD business. Net income increased 41% to 29.3 billion yen.

East Japan Railway Co. (TSE:9020)

T. Rowe Price purchased 32,400 shares of East Japan Railway Co. in the first quarter, giving the position a 1.3% weighting in the portfolio. East Japan Railway operates passenger railways, bus transportation, aeriel cableways and other transportation, telecommunications and computer-related services.

The company in fiscal 2013 ended March 31 produced operating revenues of 2.67 billion yen, a 5.5% year-over-year increase. Net income also increased 61.3% to 175.38 million. The company raised its dividend 2.4% in fiscal 2013 to 120 yen per share, and expects the same rate in fiscal 2014.

Its other expectations for fiscal 2014 include a 0.8% increase in operating revenues to 2.69 billion yen and a 9.5% net income increase to 192 million.

T. Rowe Price added seven other new Japanese stocks to the fund in the first quarter of 2013. See the complete equity portfolio here.

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