Japanese Stocks Attract Scottish Strategists After Nikkei Drop

Scottish fund managers overseeing about 530 billion pounds ($846 billion) are joining the overseas investors pouring into Japanese stocks in the wake of the country’s most severe earthquake.

Foreign investors bought a record amount of Japanese stocks last week after the market tumbled because of concern that the March 11 earthquake and leaks at the Fukushima Dai-Ichi plant would derail the world’s third-biggest economy.

“On the whole, we’re talking about a dip over the next two quarters and then coming back up when they start spending money on reconstruction,” said Mike Turner, head of global strategy at Aberdeen Asset Management Plc. (ADN) Aberdeen has put “a little bit of money back into Japan,” he said.

The Nikkei 225 Stock Average, which sank 10 percent in the week after the temblor, had its biggest weekly gain since July last week. Aegon Asset Management bought Nikkei futures, while Standard Life Investments and Scottish Widows Investment Partnership are still working out the economic implications of the disaster, the Edinburgh-based firms said.

“Has 20 percent of the future corporate profitability of the Japanese society and economy disappeared? No,” Andrew Milligan at Standard Life, said at a discussion with Aberdeen and Scottish Widows at Bloomberg’s office in the Scottish capital. “What proportion has disappeared? We don’t know.”

Source: Aberdeen Asset Management Plc via Bloomberg

Aberdeen Asset Management head of strategy Mike Turner. Close

Aberdeen Asset Management head of strategy Mike Turner.

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Source: Aberdeen Asset Management Plc via Bloomberg

Aberdeen Asset Management head of strategy Mike Turner.

Catastrophe

The number of dead and missing from the earthquake and tsunami had reached 28,550 as of 3 p.m. yesterday, while Tokyo Electric Power Co. is struggling to contain the worst disaster since Chernobyl in 1986, at Fukushima. Elevated radiation levels have been detected near the plant as well as the water supply in Tokyo, 220 kilometers (138 miles) to the south.

Japan is “taxing me,” Ken Adams, head of strategy at Scottish Widows Investment, which is considering putting more money into the country, said at the March 23 meeting. “The framework tells us we should be buying in a period of risk aversion and what I’m trying to do is work out which market to buy and I haven’t made up my mind there.”

Foreigners bought 891 billion yen ($11 billion) of stocks in the week through March 18, the most since comparable records began in 2005, the Ministry of Finance in Tokyo said on March 25. The Nikkei rallied 3.6 percent last week, led by Taiheiyo Cement Corp. (5233), which has surged 38 percent since the temblor, including 33 percent last week. Comsys Holdings Corp. (1721), which designs and builds phone and power facilities, rose 22 percent.

The decline in the market after the earthquake had driven the average valuation of 1,666 shares listed on the Topix index to 0.91 times book value in the week, the lowest since March 16, 2009, according to data compiled by Bloomberg.

‘Cheap’ Market

Aberdeen remains “underweight” on Japan, meaning the company’s holdings are lower than would normally be represented in a portfolio of assets, Turner said.

“The market is as cheap now as it’s been for almost 30 years or more,” Bill Dinning, head of strategy at Aegon, said in an interview on March 25. “It’s more of a trade to take advantage of the steep sell-off. It’s very consensual to believe this has created great value.”

Dutch insurer Aegon’s U.K. fund business ran 41 billion pounds from Edinburgh on Dec. 31, an increase of 14 percent from a year before. Aberdeen increased assets 27 percent to 183 billion pounds last year, while Standard Life’s funds went up 13 percent to 157 billion pounds and they rose 3.2 percent to 146 billion pounds at Scottish Widows Investment.

For the strategists in Scotland, the effect of the nuclear plant on the country’s energy supplies makes it harder to calculate the detriment to the economy compared with the Kobe earthquake in 1995, which caused $100 billion of damage based on the cost reported at the time.

“If we thought it was simply the equivalent of Kobe earthquake, we’d buy back in,” said Milligan. “But we are concerned about not just what’s happening with the nuclear reactor but how much damage there actually is to Japan’s energy and other infrastructure and what might that actually cause in terms of knock-on efforts for corporate profitability.”

To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net; Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net

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