Business & Finance
Business and Finance
Business and Finance
Fri, June 12, 2009
Thu, June 11, 2009 Japan Equity Fund: The Japan Equity Fund Announces Second Quarter Earnings
JERSEY CITY, NJ--(Marketwire - June 11, 2009) - The Japan Equity Fund, Inc. (
For the quarter ended April 30, 2009, the Fund earned net investment income of approximately U.S. $438,000 (equivalent to income of U.S. $0.03 per share) resulting in net investment income for the six-month period of approximately U.S. $298,000 (equivalent to income of U.S. $0.02 per share). In addition, net realized and unrealized losses from investment activities and foreign currency transactions during that same three-month period was approximately U.S. $3,288,000 (equivalent to a loss of U.S. $0.22 per share). As a result, the net realized and unrealized loss increased to approximately U.S. $3,537,000 (equivalent to a loss of U.S. $0.24 per share) for the six months ended April 30, 2009.
In comparison, during the quarter ended April 30, 2008, the Fund earned net investment income of approximately U.S. $545,000 (equivalent to income of U.S. $0.04 per share) resulting in net investment income for the six-month period of approximately U.S. $435,000 (equivalent to income of U.S. $0.03 per share). In addition, net realized and unrealized gains from investment activities and foreign currency transactions during that same three-month period was approximately U.S. $3,694,000 (equivalent to a gain of U.S. $0.26 per share). As a result, the net realized and unrealized loss decreased to approximately U.S. $10,059,000 (equivalent to a loss of U.S. $0.69 per share) for the six months ended April 30, 2008.
On April 30, 2009, the total net assets of the Fund were approximately U.S. $74.3 million. The net asset value ("NAV") per share on that date was U.S. $5.15, based on 14,441,200 shares outstanding. In comparison, total net assets on April 30, 2008 were approximately U.S. $114.7 million, equivalent to a NAV of U.S. $7.95 per share, based on 14,431,605 shares outstanding. Assuming the reinvestment of the U.S. $0.042 per share dividend paid on December 30, 2008, the Fund generated a negative investment return of 3.99% for the six months ended April 30, 2009, when measured against the NAV per share of U.S. $5.41 on October 31, 2008, based on 14,431,605 shares outstanding at that time. During the same period, the Fund's benchmark, the Tokyo Stock Price Index (the "TOPIX Index"), decreased by 4.07% in U.S. dollar ("USD") terms.
As of April 30, 2009, the Fund had 97.71% of its net assets invested in Japanese common stocks. The remaining net assets were represented by a short-term USD-denominated time deposit (0.01%) and other assets less liabilities (2.28%).
As of June 10, 2009, the Fund's net asset value per share was U.S. $5.81, based on net assets of U.S. $83.9 million. At the same date, the market price of the Fund's shares on the New York Stock Exchange closed at U.S. $4.85, representing a trading discount to net asset value per share of 16.52%.
Market Review and Outlook
During the six-month period from November 2008 through April 2009, the return of the TOPIX Index was -3.38% in JPY terms. The Tokyo market experienced declines between November and mid-March, amid concerns over the global recession, the yen's appreciation, uncertainty in the global financial markets and worsening profit outlooks. The TOPIX Index reached its lowest level in a quarter of a century, and fell below the 700 level on March 12, 2009. However, the Tokyo market rebounded strongly in the middle of March, and its upward momentum accelerated in April. Optimism towards the global financial industry and the quantitative easing measures undertaken by several major central banks including the U.S. Federal Reserve, the Bank of England and the Bank of Japan contributed to the impressive global equity market rally, as did the U.S. announcement of a toxic assets purchase program and some emerging signs of the bottoming out of economic statistics in China and the United States.
In Japan, industrial production increased 1.6% month-over-month in March, the first such growth in six months, thanks to progress in inventory adjustments. The TOPIX rose a solid 8.29% in JPY terms during April, despite the fact that it lagged behind some of the other major markets around the world. The catalyst for the recent market rally seems to be improving sentiment, as the market has begun to move away from the extremely pessimistic attitude that has prevailed, and now sees a glimmer of hope for an economic recovery. However, any continuation of the recent rally will, at least partially, be dependent upon whether or not investors' convictions for a global economic recovery continue to mount, and this, in turn, will require a steady procession of positive news.
The Tokyo market has been shifting out of 'economic crisis mode' into a more standard 'recession mode,' as the sharp economic contraction begins to abate. Earnings results for the first quarter of 2009 were indeed bad, as many manufacturing and financial companies reported sizeable losses. However, losses by exporters, including makers of automobiles, auto parts and electronics, fell below even the most recent consensus estimates, which had been downgraded to extremely pessimistic levels by both corporate management and analysts in the early part of this year. The depressed stock market levels at the end of March contributed to write-downs of equity holdings, while the stock market's subsequent recovery in April could also help bottom-line earnings in the current fiscal year.
There was a discernible shift in the supply and demand dynamics of the market in April, as retail investors aggressively bought equities to absorb the generally anticipated sell-off by domestic pension funds, which had previously absorbed the bulk of the massive foreign sell-off in the period between the Lehman bankruptcy on September 15, 2008 and March 2009. Foreign investor activity remains subdued, with the lone exception being short covering by hedge funds, and we suspect that most global investors remain underweight in Japanese equities. Although we recognize that complacency is a risk at this point, we feel fairly safe in saying that the Japanese stock market bottomed out in the first quarter of this year.
With regard to sector strategy, we intend to maintain our overweight position in cyclical sectors, including technology, automobile and wholesale & transportation, based on their attractive valuations and progressing inventory adjustments, best exemplified by the auto industry. We have reduced the underweight position in financials amid the better-than-expected condition of the global financial markets, and we intend to maintain our underweight position in public utilities, telecommunication and healthcare names. We will continue to guide our stock selection with an emphasis on fundamental earnings power and strong corporate balance sheets.
The ten largest industry classifications of the Fund's Japanese equity investments held as of April 30, 2009 were: Percentage of Industry Net Assets -------- ------------- 1. Electric Appliances 13.42% 2. Transportation Equipment 11.85 3. Banks 9.85 4. Wholesale Trade 8.23 5. Chemicals 6.36 6. Machinery 5.03 7. Retail Trade 4.80 8. Communication 3.96 9. Electric Power & Gas 3.63 10. Pharmaceutical 3.49 The Fund's ten largest individual common stock holdings at the same date were: Percentage of Issue Net Assets ----- ------------- 1. Mitsubishi UFJ Financial Group, Inc. 4.69% 2. Toyota Motor Corp. 3.84 3. Honda Motor Co., Ltd. 3.39 4. Mitsubishi Corp. 3.24 5. Shin-Etsu Chemical Co., Ltd. 2.98 6. Sony Corp. 2.83 7. Panasonic Corp. 2.71 8. Sumitomo Corp. 2.55 9. Seven & I Holdings Co., Ltd. 2.47 10. Sumitomo Electric Industries, Ltd. 2.02 QUARTERLY RESULTS OF OPERATIONS Net Realized and Unrealized Net Increase Gains (Losses) (Decrease) in on Investments Net Assets Net Investment and Currency Resulting Income (Loss) Transactions From Operations --------------- ----------------- ---------------- Total Per Total Per Total Per QUARTER ENDED (000) Share (000) Share (000) Share ------ ------ -------- ------- -------- ------ January 31, 2009 $ (140) $(0.01) $ (249) $ (0.02) $ (389) $(0.03) April 30, 2009 438 0.03 (3,288) (0.22) (2,850) (0.19) ------ ------ -------- ------- -------- ------ For the Six Months Ended April 30, 2009 $ 298 $ 0.02 $ (3,537) $ (0.24) $ (3,239) $(0.22) ====== ====== ======== ======= ======== ====== January 31, 2008 $ (110) $(0.01) $(13,753) $ (0.95) $(13,863) $(0.96) April 30, 2008 545 0.04 3,694 0.26 4,239 0.30 July 31, 2008 (59) 0.00 (9,558) (0.67) (9,617) (0.67) October 31, 2008 369 0.02 (27,303) (1.89) (26,934) (1.87) ------ ------ -------- ------- -------- ------ For the Year Ended October 31, 2008 $ 745 $ 0.05 $(46,920) $ (3.25) $(46,175) $(3.20) ====== ====== ======== ======= ======== ====== PER SHARE SELECTED QUARTERLY FINANCIAL DATA Net Asset Market Share QUARTER ENDED Value Price* Volume* --------------- --------------- ---------- High Low High Low (000) ------ ------ ------ ------ ---------- January 31, 2009 $ 5.98 $ 5.06 $ 5.43 $ 4.26 1,709 April 30, 2009 5.36 4.28 4.84 3.56 1,965 January 31, 2008 $ 8.66 $ 6.94 $ 8.00 $ 6.16 1,493 April 30, 2008 7.95 7.15 7.42 6.37 985 July 31, 2008 8.42 6.66 7.79 6.62 1,280 October 31, 2008 7.15 4.93 6.67 4.22 1,684 *As reported on the New York Stock Exchange.
