Betting on Japan's policy interest rate moving towards 1%, the world's largest listed hedge fund increases its stake in Japanese bank stocks
The investment managers of the world's largest publicly listed hedge fund, Man Group, are increasing their positions in Japanese financial stocks, believing that the Bank of Japan needs to raise interest rates to curb inflation. The fund has assets totaling £2.45 billion and has outperformed 93% of its peers over the past three years. Although the increase is limited, it is significant for this pure long-only fund. Badger expects the policy rate to advance towards 1% and emphasizes that the increase is "extremely gradual," with the heavily weighted sectors still concentrated in automotive and factory automation
According to Zhitong Finance APP, a fund manager under the world's largest publicly listed hedge fund, Man Group, is increasing her positions in Japanese financial stocks because she believes the Bank of Japan needs to raise interest rates to curb inflation.
Emily Badger, co-manager of the Man Japan CoreAlpha fund under Man Group, pointed out that the relative stability of the yen also provides the Bank of Japan with room for policy adjustments. Compilation data shows that the fund has assets totaling £2.45 billion (USD 3.3 billion), and its performance has outperformed 93% of its peers over the past three years.
"The current inflation level is higher than last year, and the yen to dollar exchange rate is more stable than last summer," said the UK-based portfolio manager. "Therefore, we have recently slightly increased our holdings in the banking sector, and the path to normalizing monetary policy is very clear."
Although the increase is limited, this adjustment is significant for this purely long-only fund, which was underweight in the Japanese financial sector at the beginning of this year. Looking back to the end of 2023, when investors had severe disagreements about the performance of bank stocks before the Bank of Japan exited its negative interest rate policy, Badger believed that the benefits of future tightening policies had already been fully reflected in stock prices.
Bank of Japan Governor Kazuo Ueda dismissed last month the argument that the central bank's "interest rate hike pace is lagging," which dampened short-term rate hike expectations. Although the central bank raised its inflation forecast at its most recent meeting, which ended on July 31, investors believe its overall stance remains dovish.
Currently, overnight index swaps indicate a 55% probability of a rate hike before the end of the year, significantly down from 79% before the Bank of Japan's July monetary policy meeting. This probability had previously reached 100% before U.S. President Trump's "liberation day" tariff threat in early April.
"Once trade tensions and political uncertainties subside, the policy rate will move towards the 1% level," Badger stated.
Badger emphasized that the increase in bank stocks is "extremely gradual" and revealed that the fund's heavy holdings are still concentrated in the automotive industry and factory automation sector. She expects these sectors to rebound once the prospects of the U.S. trade agreement become clearer.
Additionally, she believes that the continuous improvement in corporate governance will boost Japanese stock performance. Although the Japanese stock market reached a historical high this month, its gains for the year still lag behind other regional markets.
She stated that the next phase of corporate governance reform will focus on enhancing companies' long-term profitability and growth potential, "therefore, we firmly believe that the Japanese stock market still holds long-term investment value."
