The deteriorating situation in global financial markets led to a heavy sell-off in Japan. This was driven mainly by foreign investors suffering liquidations, which resulted in shares being sold across the board, inflicting particular damage on large blue chip companies which formed the core of their portfolios. Japanese pension funds were small buyers into the fall.The fund performed in line with its benchmark and outpaced the Topix Index despite raising the risk profile as we thought we were close to the bottom of the market movement. This is explained by the indiscriminate nature of the sell-off, which affected growth focused and defensive market areas alike. The holdings in Toyota and retailer Yamada Denki were reduced, with proceeds used to purchase JGC, which has a huge forward order book for building oil refineries.We also reduced our exposure to defensives, such as Kirin Brewery and Chubu Electric Power and added to real estates and traders, as well as opening a position in Orix leasing company and condominium builder Daito Trust.
The stock market is deeply oversold and sentiment extremely negative but we anticipate that the G8 countries will make a concerted attempt to rescue the distressed financial markets. We are expecting stocks to rally from the historically low bargain levels, which are reflecting much of the current recession. We will make adjustments to the fund so that it can benefit from events as they unfold.