W&F September 2017

www.wealthandfinance-news.com 18 Wealth & Finance International - September 2017 During August, there were moments where investors bought companies following good earnings announcements, however, general sentiment worsened as the situation in North Korea gradually became more severe. With the market volume falling, the selloff by foreign investors continued and investors horded to lock in profits for specific theme-driven growth stocks in the mid/small region, which have largely performed over the past few months. TOPIX at the end of the month was 1,617.41 points (-0.07% MoM), and the Nikkei225 average was 19,646.24 yen (-1.40%). Within the mainstay issues, the selloff by foreign investors and BoJ’s ETF buying demand continued, which both dented alpha generation capability. However, due to the price adjustment within the mid/small cap market, chiefly strong theme driven names, we have begun to see the potential recovery in alpha generation on the short side. With respect to stocks with high valuation and high participation rate of individual investors, we have decided to reduce exposure towards mid/ small cap names with relatively low liquidity as the worsening sentiment may trigger further decline in stock price. Also, in preparation for the risk-off movement accompanying the severe situation in North Korea, we restrained the portfolio risk and ended the month with low net exposure. There is no change in view, that foreign investors are not in a situation to aggressively participate in the Japanese market, where there are limited macro events. As a result, we need to pay attention to the volatility risk due to limited overall volume and supply and demand factor may largely swing stock price movement. However, we believe that such risks will remain short-term as there is a sense of cheap valuation and support by the BOJ purchasing ETFs. By continuing investment decisions from a medium term fundamentals and valuation perspective, we intend to regard short- term volatility as good opportunities for rebalancing the portfolio. In regards to the challenges facing us in the future, the market is expected to be volatile in a thin market. Since the GSS strategy works best in a highly liquid and fundamentally driven environment, we expect that the sector will continue to be challenging for our strategy. However, as Stats has done so successfully in the past, we will continue our efforts to generate superior returns even in a challenging environment. Currently, Stats manages over $251 million in assets in the same strategy. 80 % of Stats client base is out of Japan. The geographical client base is spreading out FoF, family offices, institutional clients and financial institution of Asia and Europe.