Man Group's Japan Fund Buying Bank Stocks in Bet on Inflation

Mint

2 days ago

(Bloomberg) -- An investment manager at the world's largest publicly traded hedge fund, Man Group, is adding Japan's financial shares to her portfolio on the view the nation's central bank will need to hike interest rates to tame inflation.
The relative stability in the yen also provides room for the Bank of Japan to act, according to Emily Badger, a co-manager of the Man Japan CoreAlpha Fund, which has £2.45 billion ($3.3 billion) of assets and outperformed 93% of its peers over the past three years, according to data compiled by Bloomberg.
'Inflation is higher than last year, the yen-dollar is more stable than last summer,' said the UK-based portfolio manager. 'We have therefore taken the opportunity in the short term to increase our position in the bank sector slightly, as we think the path is clearly towards normalization.'
While buying may be slight, the shift for the long-only fund is notable given that it was underweight Japan's financial sector at the start of the year. And back in late 2023, when investors were split on the fate of bank stocks ahead the BOJ ending negative interest rates, Badger among those who viewed the benefits of future tightening as already priced in.
BOJ Governor Kazuo Ueda last month rebutted claims the central bank was behind the curve in raising interest rates, which tempered expectations of near-term hikes. Although the BOJ raised inflation forecasts at its last meeting that concluded on July 31, investors viewed the overall stance as dovish.
Overnight index swaps now suggest a 55% chance for a hike by the end of the year, down from 79% before the July BOJ decision. Swaps had suggested 100% before US President Donald Trump's barrage of 'liberation day' tariff threats in early April.
'Once the trade situation and the political uncertainty die down, the policy rate will be pushed towards 1%.' said Badger.
Badger describes the increase in her fund's bank holdings as 'very gradual,' adding that her larger positions remain in the auto sector and factory automation, where she anticipates a rally once there's more clarity on the US-Japan trade deal.
She is hopeful further corporate governance improvements will boost Japanese stocks, which struck record highs this month but still lag their regional peers year to date.
She said the next phase of corporate governance reforms will involve enhancement of longer-term profitability and growth.
'Because of that we think that long term Japanese equities remain an opportunity,' she said.
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