Why Did Japan-Focused Mutual Funds Fall Last Week?
Japan’s industrial production
The preliminary reading for Japan’s seasonally adjusted index of industrial production for July showed that output from manufacturing and mining industries fell by 0.6% month-over-month. It had risen by 1.1% in the previous month. This fall was quicker than market participants had expected.
China’s sharp reduction in imports is affecting Japanese exports and, in turn, its industries. According to Japan’s Ministry of Economy, Trade and Industry, the top three industries that contributed to the overall fall in industrial production were, in order, electronic parts and devices, transport equipment, and information and communication electronics equipment. This indicates that Nidec Corporation (NJ), Mitsubishi Heavy Industries (MHVYF), Mabuchi Motor (MBUMY), and Fanuc Corporation (FANUY) may be under pressure due to falling demand.
The report also showed that shipments fell 0.3% in July from a month ago. Electronic parts and devices, petroleum and coal products, and information and communication electronics equipment were the top three industries that saw shipments fall during the month.
Survey of production forecast
A survey conducted by the Ministry of Economy, Trade and Industry showed that manufacturing production is expected to pick up by 2.8% in August and then fall by 1.7% in September. The survey shows that the rise in August could be driven by the information and communication electronics equipment industry, while the fall in September could be led by general-purpose, production and business-oriented machinery.
Impact on Japan-focused mutual funds
Among the T. Rowe Price Japan Fund (PRJPX), the Fidelity Advisor Japan Fund – A (FPJAX), the Nuveen Tradewinds Japan – A (NTJAX), and the Matthews Japan Fund – Investor Class (MJFOX), PRJPX and MJFOX have higher exposure to the industrials sector. However, if we go by the results of the survey of production forecast for August, we see that these two funds may post better returns, assuming that there are no negative surprises.
Falls in transportation equipment, which took place in July and are expected in September, may also affect companies like Toyota Motor (TM) and Honda Motor (HMC).
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