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Hennessy Japan Fund Second Quarter Commentary

September 05, 2013 | About:
Holly LaFon

Holly LaFon

260 followers
1. There appears to be renewed enthusiasm regarding the attractiveness of the Japanese market. What factors are driving this interest?

Japan's new Prime Minister, Shinzo Abe, favors a monetary policy that includes stimulus actions that are similar to those initiated by the U.S. Federal Reserve and the European Central Bank. The Bank of Japan, Japan's Central Bank, is predicted to inject more liquidity into the Japanese economy within the next few months. These actions will likely result in a weaker yen, which could make Japanese goods less expensive to Japan's trading partners. The expectation of these actions has already led to a weakening of the yen.

Japanese companies are known for quality products that are desired throughout the world. A weaker yen could result in higher revenue and profit for Japanese companies that derive a meaningful percentage of their operating results from exports. We believe that a weaker currency will boost stock prices and provide the impetus for investors to re-evaluate Japan's attractiveness and potentially increase their Japanese equity exposure.

2. How dependent are Japanese companies, in general, on exports?

Exports are critical to Japanese companies. In fact, about 50% of Japan's listed companies are export-oriented. China has recently become Japan's largest trading partner surpassing the United States. While Japanese technology and automobiles are prevalent in the American economy, basic goods such as personal care items and retailers are highly desired in Asia. There are more cultural similarities to the Asian consumer for these products and female consumers, in particular, covet Japan's strong brands. Interestingly, Europe has always been a smaller trading partner and Japanese companies have been insulated from the Eurozone woes. With the Asian economies in a growth mode and the U.S. economy in recovery, we believe that the demand for Japanese goods and services will accelerate. A weaker yen should fuel this demand even more quickly.

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