Stats Investment Management Co., whose hedge fund posted a positive return in each of the past 10 years, said the era of easy gains in the Japanese stock market fueled by Abenomics is over.
Equities surged almost 80 percent in the three years through 2015, buoyed by Prime Minister Shinzo Abe’s efforts to boost the economy and spur inflation. Those efforts are sputtering, and despite more than three years of the Abenomics program, the economy contracted at a faster pace than expected in the last three months of 2015. The Bank of Japan on Jan. 29 adopted a negative interest rate for the first time in history.
“Abenomics provided a special period where you could make money on almost anything you invested in,” said Toru Hashizume, chief investment officer of Tokyo-based Stats. “For those who have invested in the stock market based on a belief that the market contains little risks, they will start to exit as the market becomes volatile. I see this trend continue.”
Stats joins a growing group of Japan’s hedge funds seeing more volatility ahead for Japan’s stocks. J Flag Investment Co., an investment advisory firm which helps run among the top five funds in Japan, said the BOJ’s move to negative interest rates will not damp price swings and that it is staying in cash.
The Topix has dropped more than 16 percent so far this year, tumbling along with other major indexes around the globe because of concerns about a slowdown in China’s economy and declining commodity prices. The decline in Japanese stocks has been accompanied by extreme price swings, with the 10-day volatility on the gauge soaring to the highest level since the March 2011 earthquake. The Topix jumped 8 percent on Monday to post its biggest gain in more than seven years, after plunging 13 percent in the prior week.
The index swung between gains and losses on Tuesday, rising 1.2 percent at the trading break in Tokyo after declining as much as 1.2 percent earlier. The 30-day volatility measure for the Topix is at 49, the highest among 70 indexes tracked by Bloomberg, which includes emerging and frontier markets. That surpasses Italy, Argentina and Greece, which are next on the list.
Investment strategies that worked in the past years will not work this year as investors exit the market, said Hashizume, whose firm has about ¥30 billion under management. As consumption slows along with tepid growth in economies including China, Hashizume’s fund is short-selling companies that produce parts for smartphones, as well as security software companies that the manager deems have become expensive. He declined to name the companies they have wagered against.
“It’s a pretty bad demand-and-supply environment,” Hashizume said.
Hashizume’s Ginga Service Sector Fund, with $229.9 million in assets, returned 1.5 percent in January, beating the Topix’s 7.5 percent decline in the same period. Hashizume’s fund has gained every year since its inception in 2006, a period during which the Topix had four down years.
The fund’s top holdings include Wellnet Corp., which offers Internet transaction services, and Outsourcing Inc., which provides worker dispatching services for manufacturing companies. The fund also owns Oriental Land Co., the operator of Tokyo Disney Resort.
The fund holds Yahoo Japan Corp. and Nippon Telegraph and Telephone Corp., stocks that Hashizume described as “defensive” in a volatile market. Shares of Yahoo Japan and NTT are both beating Japan’s benchmark indexes this year.