Japan Sector Strategy - Death Rattle for Defensives?
While it is not a given that a switch from a high growth, high interest rate environment to a low growth, low interest rate environment is a good one for equities in general, it should be good for defensive stocks, because these are the most bond-like of equities and the switch almost defines a fixed income bull market. Japan may not have been particularly high growth or high interest rate in 2000, but it was certainly higher growth and higher interest rate than today, and it is no surprise that defensive sectors like foods (+210% relative to Topix since end-1999) and pharmaceuticals (+160%) have done very well over this time.
The question now is whether that move is done. Food stocks in particular have had a rocky ride this past month, but they are not alone. Pharmaceutical and telecom stocks have also underperformed recently, despite reporting strong earnings results during this time period. This report looks at why this switch in fortunes has taken place and whether it is set to continue. It looks at the core issue with defensives, at this point – valuation discrepancies – and whether this is now too great an issue to ignore.
Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods.
PSA produces both company and sector reports. The focus of PSA’s research is to identify winners and losers as new technologies impact the top and bottom lines of corporations. Critical to our research is the clear explanation of how these new technologies work and how they impact companies and industries.
The founding partners have worked closely together for twenty years and the team has more than doubled in size since 2012.
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