Beauty in the eye of the beholder

The Japanese economy is such a basket case that not many investors would consider putting their money into that market.

Not so for BT Funds Management. Currently it is hot on Japan and Asia as an investment destination, as opposed to the United States and Europe.

BT chief investment officer Craig Stobo admits that at a macro level Japan is not very appealing - after all it is going through its fourth recession in 11 years.

However, the view at a micro, or company, level is quite different.

He says there are a number of companies that are doing very well.

These tend to be companies that have benefited from foreign direct investment. An example of this is Nissan, which is now owned by French car maker Renault.

Besides buying the business, the French company has brought in its own management and is making the company far more efficient than it was under more traditional Japanese management.

"Foreigners are coming in taking over companies and driving down costs. This is providing huge benefits to a small number of Japanese companies."

Stobo warns that this is not happening across all Japan: "There are still some real dinosaurs."

Therefore it is a market which suits a bottom-up, stock picking manager such as BT.

He sums up Japan by saying that the macro economy remains weak, and structural problems abound. However, there are promising signs from the Government and corporate reform is driving structural improvements in profitability.

While BT is keen on Japan and the Asia Pacific regions, its overweightings to those areas is minor at around about 1% each.

Stobo says BT's allocations on a regional basis aren't too far out from the benchmark because there is a synchronised worldwide economic slowdown - no country is experiencing strong economic growth.

On a sectorial basis BT is keen on consumer discretionary area, healthcare, industrials and information technology.

Stobo predicts that although economies are slowing down consumers will continue to spend, hence the consumer discretionary sector which includes things like whiteware will prosper. Technology advancements and demographic changes will underpin healthcare and IT.

BT is underweight in defensive sectors such as financials (banks and insurance companies) and utilities.

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