It has been a challenging environment for global markets in general over the past few months. The combination of mounting inflationary pressures and weak economic growth continued to dampen investor sentiment. The fund was in line with the benchmark index during the period, posting slightly negative returns.Our overweight autos and underweight in financials contributed to relative performance. However, this was offset by our overweight in producer durables, such as electronics companies. The leading contributors to performance included materials, consumer discretionary and autos, whilst consumer staples and health care detracted from performance.From an external perspective, exports have remained remarkably benign despite a sharply slowing US economy. This, we believe, reflects the diversity of Japan's export base which is becoming less reliant on the US, with significant exposure to Asia, the emerging markets and Europe. We expect Japanese exports will continue to thrive given leading technologies and strong global brands.
Concerns over global inflationary pressures and slowing economic growth continue to dampen sentiment. Whilst clearly a threat to most economies, we believe that the introduction of moderate inflation to the Japanese economy should be positive in the medium term.In the short term however, consumer spending and sentiment continue to deteriorate, suggesting a sustained turnaround in the domestic economy is still some way off. We anticipate further volatility and the potential for share prices to fall back in the shorter term.However, valuations, in aggregate, in Japan still remain attractive and we continue to find opportunities to buy stocks that represent a genuine store of value through our bottom up research. We believe this value will be realised once investors refocus on fundamental qualities.