Handelsbanken Japan Tema (A9 SEK)

Q3 was a turbulent period for Japanese equities, which both reached new peaks as well as experienced a historic downturn. During the first weeks of July, the Japanese stock market rose, driven by developments in the US, despite the lack of strong news domestically. The market reached a historic peak in mid-July. The US economy was weak during the same period, particularly with lower than expected inflation, which increased the expectations for a cut in interest rates. However, at the end of the month an unexpected change in rates in the US and in Japan occurred, partly due to a rate hike in Japan and concerns about an economic slowdown in the US. As a result, investors began to sell their investments in yen-borrowed assets, which strengthened the Japanese currency significantly against the USD. This also affected other investments and the equity market fell sharply at the beginning of August, which was the largest downturn since 1987. However, we saw temporary upturns after the sharp downturn since investors made purchases when the prices were low. The market then declined again after September’s election, which determined Japan’s political leadership.

Within sectors and themes, the overweight in Japanese housing construction, such as Sumitomo Forestry and Sekisui House, benefits from expectations of lower interest rates in the US. Power companies and power construction-related equities, such as Fujikura and Hitachi, also posted positive performance, with support from higher demand for electricity. As Japan’s economy has strengthened and household incomes have increased, we have continued to invest in defensive sectors such as consumer staples, construction and civil engineering companies, as well as IT services with strong connections to the Japanese economy.