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By Michael Stanes, Investment Director at Heartwood Investment Management

Japan’s equity market has suffered more than other developed equity markets in 2016. The overriding factor driving the downturn has been the significant appreciation of the Japanese yen this year, a consequence of its perceived ‘safe-haven’ status. The Japanese yen has followed a remarkably close path to the Nikkei 225, albeit inversely, appreciating by 9% this year against the Nikkei’s 8% fall. This period of yen strength has been in spite of the Bank of Japan’s efforts to depreciate the currency through adopting a negative interest rate policy.

Japanese equities: volatile and cyclical

History shows that Japan’s equity markets are notoriously volatile and cyclical, often characterised by episodes of hope and euphoria only to be replaced by periods of disillusionment and frustration. We have certainly witnessed this episodic rise and fall over the past eighteen months. The Nikkei 225 returned 18.7% between October 2014 and August 2015 in local currency terms, spurred on by aggressive Bank of Japan easing and hopes of overdue reform through so-called ‘Abenomics’, a programme designed to stimulate growth and deflate the economy.

However, when China’s central bank allowed a depreciation of the renminbi in August 2015, global risk aversion took hold on concerns that the Chinese authorities were losing control of China’s economic slowdown. Capital started to flow back into the yen in response to further steep falls in oil prices, on disappointing global economic data and uncertainty surrounding the future path of US interest rates.

It is easy for investors in Japan to become despondent. The macro environment is a source of perennial disappointment. Most recently, manufacturing output and exports have been constrained by slower global growth. Private consumption has not absorbed this slack, remaining subdued irrespective of tight labour market conditions and little price pressure. Furthermore, without the political capital to effect change, the longer-term structural challenges of ageing demographics and a shrinking working age population seem insurmountable.

Micro changes tell a different story of a ‘new’ Japan

Nonetheless, despite all of these macro shortcomings, none of the above has precluded change from being effected at the micro level. There has been a strong focus on improving shareholder value within corporate Japan, particularly through strengthening corporate governance. Though the share price performance of large-cap export-orientated companies has been pressured in the last few months by yen strength, other sectors and stocks exposed to a ‘new’ Japan have told a very different story, particularly among smaller companies.

The Tokyo Stock Exchange Mothers’ Index has returned 38.2% this year in local currency terms and 57.5% in sterling; all of this upside occurring since mid-February. What is telling is the sectoral make-up of this index: more than 50% is in health care, 30% in information technology and 8% in consumer discretionary (Source: Bloomberg, as of 21st April 2016). Investors are tapping those companies that are able to exploit and benefit from structural societal shifts occurring in Japan – an ageing population and changing consumer lifestyles — and which can potentially create long-term value. Examples of such industries include medical diagnostics, robotics and consumer digital.

The narrative of Japanese equity markets in the last few months is therefore rather more nuanced than the headlines suggest. When we took the decision to overweight Japanese equities across our portfolios in the fourth quarter of 2014, part of the rationale was to capture changes at the micro level; we still maintain this view.

The currency implications of investing in Japanese equities

However, as sterling-based investors, we have also been cognisant of the currency implications. We initially invested partly on a hedged basis, taking the view that the yen would depreciate in response to Bank of Japan stimulus. We then successfully removed the hedge in July 2015 and this has proved to be the right decision, since which time the yen has strengthened against sterling by more than 15%.

Nevertheless, we now believe that the yen could be approaching a turning point. The balance of views on the Bank of Japan’s Board appears to be moving in favour of further stimulus, and perhaps not simply through more aggressive use of a negative interest rate policy, following Governor Kuroda’s nomination of two new board members this year. Furthermore, with the Upper House election in the summer and negative rates being very unpopular with locals, arguably it is time for more a creative approach from the Government. Expectations are therefore building that the Bank of Japan will ease policy further to counter the deflationary impact of recent yen strength.

At such times, it is important for investors in Japanese equities to consider both equity and currency implications if they are to gain the most from their investment. On this basis, we now consider it prudent to partially re-hedge some of our Japanese equity exposure.

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Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up



Exclusive: Portugal sees green hydrogen output by end-2022, $12 billion in investment lined up 1

By Sergio Goncalves

LISBON (Reuters) – Portugal will start producing green hydrogen by the end of 2022 and already has private investment worth around 10 billion euros ($12 billion) lined up for eight projects that are expected to move forward, Environment Minister Joao Matos Fernandes said.

He told Reuters in a telephone interview there were also several “pre-contracts for the purchase and assembly of electrolysers” to produce the zero-carbon fuel made by electrolysis out of water using renewable wind and solar energy.

Such hydrogen is more expensive to extract than the heavily polluting conventional method of using heat and chemical reactions to release hydrogen from coal or natural gas, known as brown and grey hydrogen respectively.

Hydrogen is now mostly used in the oil refining industry and to produce ammonia fertilisers, but sectors such as steelmaking, transportation and chemicals are beginning to develop large-scale hydrogen applications to gradually replace fossil fuels as countries try to reduce pollution.

The European Commission has mapped out a plan to scale up green hydrogen projects across polluting sectors to meet a net zero emissions goal by 2050 and become a leader in a market analysts expect to be worth $1.2 trillion by that date.

“By the end of 2022, there will certainly be green hydrogen production in Portugal,” Matos Fernandes said. “Green hydrogen will, over time, allow Portugal to completely change its paradigm and become an energy exporting country.”

He said seven groups had submitted applications under Europe’s IPCEI scheme for common-interest projects to make part of a planned export-oriented “hydrogen cluster” near the port of Sines, from where hydrogen could be shipped to Rotterdam. Total investment there is estimated at some 7 billion euros.

A consortium including Portugal’s main utility EDP, oil company Galp, world’s largest wind turbine maker Vestas, among others, is behind one of the projects.

In Estarreja in north Portugal, local firm Bondalti Chemicals aims to invest 2.4 billion euros in a hydrogen plant.

Altogether, these envisage an installed capacity of over 1,000 megawatts (MW).

Matos Fernandes said Portugal was also negotiating with Spain the construction of a pipeline for renewable gases, including hydrogen, from Sines to France, crossing Spain.


Spain and Portugal also want to develop an ambitious cross-border lithium project taking advantage of the geographical proximity of their lithium deposits and aiming to cover the entire value chain from mining to refining, cell and battery manufacturing to battery recycling, he said.

Portugal is already a large producer of low-grade lithium mainly for the ceramics industry, but is preparing to make higher-grade metal used in electric car batteries.

A much-awaited licensing tender for lithium-bearing areas that has been delayed by the COVID-19 pandemic should take place by the year-end, Matos Fernandes said.

He promised the tender would address environmental concerns by local communities and there would be no lithium mining “at any cost”.

The minister also said Portugal would use its six-month presidency of the Council of the European Union to finalise a landmark law that would make the bloc’s climate targets irreversible and speed up emissions cuts this decade, expecting it to be approved in the first half of 2021.

(Reporting by Sergio Goncalves; Editing by Andrei Khalip and David Evans)


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Under fire in EU, AstraZeneca CEO says ‘hopefully’ will meet vaccine supply goals



Under fire in EU, AstraZeneca CEO says 'hopefully' will meet vaccine supply goals 2

BRUSSELS (Reuters) – AstraZeneca boss Pascal Soriot said on Thursday he hoped to meet the European Union’s expectations on the number of COVID-19 vaccines the company can deliver to the bloc in the second quarter, after big cuts in the first three months of the year.

The Anglo-Swedish drugmaker has been under fire in the EU for its delayed supplies of shots to the 27-nation bloc, which ordered 300 million doses by the end of June.

“We are working 24/7 to improve delivery and hopefully catch up to the expectations for Q2,” Soriot told EU lawmakers in a public hearing.

Under its contract with the EU, the company has committed to delivering 180 million doses in the second quarter.

Soriot did not mention the 180 million target, but said he was confident the company will be able to increase production in the second quarter using factories outside the EU that had no production problems, including in the United States.

He confirmed the company was trying to get 40 million doses of the COVID-19 vaccine to the EU by the end of March, which is less than half the amount it promised for the quarter in its contract.

The EU, which has fallen far behind the United States and former member Britain in vaccinating its public, has repeatedly urged the firm to deliver more.

Lower-than-expected yields – the amount of vaccine that can be produced from base ingredients – at its factories hurt output in the first three months.

Asked about supplies to Britain, which relies on the same factories used by the EU, Soriot said the former EU member with a population of around 66 million was smaller, and noted that most doses produced in the EU were used to serve the EU which has a population of about 450 million.

Executives from rival drugmakers that have developed or are testing COVID-19 vaccines, including Moderna Inc and CureVac NV were also part of the panel.

But most questions were directed at Soriot amid anger that the company has failed to deliver promised vaccine quantities to the bloc on schedule.

Moderna Chief Executive Officer Stephane Bancel said the company has experienced fluctuations as the U.S. biotech group ramps up output of its COVID-19 vaccine.

He said usually a company would stockpile product ahead of a launch, but it is shipping every dose it makes, leaving it without any spare inventory.

His comments came a day after the company increased its output target for this year and 2022 as it invests in additional manufacturing capacity.

(Reporting by Josephine Mason in London and Francesco Guarascio in Brussels; Editing by Susan Fenton, Bill Berkrot and Keith Weir)


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Shift to sun, ski and suburbs gives Airbnb advantage over hotels



Shift to sun, ski and suburbs gives Airbnb advantage over hotels 3

By Ankit Ajmera

(Reuters) – Airbnb’s quarterly results are likely to show the pandemic may have helped the home rental company lure leisure travelers away from big hotels during the global travel collapse of 2020.

Weary of being locked up in their homes for months, travelers hit the road and booked homes and cottages on Airbnb, while avoiding flights and downtown hotels, analysts said.

Airbnb accounted for 18% of the total U.S. lodging revenue in 2020, up from 11.5% in 2019, data from hotel analytics provider STR and vacation rental data company AirDNA showed.

It outperformed the hotel industry and online travel agents such as Expedia and thanks to its greater offer of ‘sun, ski, and suburban’ rental homes, Cowen & Co analysts said.

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 4

(Graphic: Airbnb grabs bigger share of U.S. lodging market in pandemic:

For an interactive graphic, click here:


In 2019, about 90% of Airbnb’s bookings came from leisure travels compared with about 20%-30% for large hotels chains, including Marriott and Hilton, that rely on business travel to grow their profits.

“Unfortunately, the hotel operators do not have as much supply in locations where people are willing to travel,” said Jamie Lane, vice president of research at AirDNA.

Lane said with mass vaccinations later in the year, the share of alternative accommodations including Airbnb will drop before continuing to grow at 2%-3% per year once normal travel patterns return.

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 5

(Graphic: Airbnb U.S. sales against top hotels:

For an interactive graphic, click here:


* The San Francisco-based company is expected to report gross bookings of $23.10 billion in 2020, down from about $38 billion a year earlier, according to the mean estimate of 12 analysts according to Refinitiv; gross bookings are seen rising by 50% in 2021.

* Analysts’ mean estimate for Airbnb’s full-year net loss is $3.52 billion, bigger than a loss of $674.3 million a year earlier. Full-year revenue is expected to drop 32% to $3.27 billion.


* Of 34 brokerages, 20 rate Airbnb’s stock “hold”, 12 “buy” or higher and two “sell” or lower

* Wall Street’s median 12-month price target for Airbnb is $156​, about 22% below its last closing price of $200.20.

* The company’s stock has nearly tripled since listing in December

Shift to sun, ski and suburbs gives Airbnb advantage over hotels 6

(Graphic: Airbnb’s stock has nearly tripled since debut:

For an interactive graphic, click here:

(Reporting by Ankit Ajmera in Bengaluru; Editing by Sweta Singh and Saumyadeb Chakrabarty)

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