Vedanta seeks $1 billion in upsized share placement
Vedanta is joining a slew of Indian companies tapping stock investors amid surging valuations and increasing demand for equity investments in the country.
Japan’s best-performing equity fund is betting on the nation’s nonferrous metals and specialty chemicals industries to help it deliver further gains.
The two sectors are attractive due to their low valuations and the fact they will benefit from increased global demand, according to Ben Williams, assistant portfolio manager at Arcus Japan Fund, which has returned about 18% this year. Businesses in those areas will also gain as a weak yen boosts sales, and high cash levels lead to rising dividends and share buybacks, he said.
“Nonferrous metal stocks are trading close to their historical valuation lows,” London-based Williams said in an interview. “Looking longer term, the outlook of metals like nickel and copper are particularly good given rising global demand in areas like green energy transition.”
The Arcus Japan Fund, which has the equivalent of $870 million in assets, has beaten all of its peers this year, generating double digit returns even as they have averaged a loss of 7%, according to data compiled by Bloomberg.
The Topix Nonferrous Metals Index, which has 24 members including Sumitomo Electric Industries Ltd., and Sumitomo Metal Mining Co., has risen about 11% this year, while the broader Topix Index has dropped about 1%. The metals’ gauge is trading at 9 times its 12-month forward earnings per share estimates, versus a 10-year average of 11 times.
The area of chemicals is also attractive over the longer term based on favorable balance sheets, relatively high liquidity, market dominance and unique technology, Williams said.
“The companies are valued as if they are still the big petrochemical companies from 10 years ago with volatile margins and bad balance sheets” he said. “They now have good global market shares in speciality chemicals where margins are higher and more stable than petrochemicals, but are extremely cheap.”
The Topix Chemical Index has fallen about 9% this year, among the worst performing sub-indexes on the Topix gauge. Specialty chemicals account for 30% of the sub-index’s weight, according to Bloomberg classifications. The chemicals index is valued at 12 times forward EPS estimates, below the 10-year average of 16, data compiled by Bloomberg show.
Arcus is “looking on a one-or-two year basis” for return on these areas of investment, said Peter Tasker, co-founder and strategist at Arcus Research Ltd. (Tokyo), speaking in the same interview. “It would be great if it happens quickly, but we are talking about a couple of years’ perspective.”
While betting on metals and chemicals, the fund is underweight in electric appliances, information and communications and pharmaceuticals, given the premiums over global peers, he said.
Tasker said he would like to see a stronger fiscal response from the Japanese government to the current downturn, as that would also help strengthen the weak yen.
“The economy still needs another push,” he said. “Japan has reopened, but still the numbers we are seeing coming through the economy are fairly weak.”
(By Winnie Hsu, Hideyuki Sano and Yasutaka Tamura)
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