Young sticks to Japan underweight

Aberdeen Asset Management’s Hugh Young continues to be heavily underweight Japan, despite the country enjoying its fastest period of growth for over two years.

Japanese GDP grew 1.2% quarter on quarter between July and September, while the OECD also recently made a significant upward revision in its forecast for Japan's growth for 2010 and 2011.

However, Young maintains around a 20% weighting to the country in both the £183m Aberdeen Asia Pacific and Japan fund and the £440m St James's Place Far East fund. This compares with a FTSE Asia Pacific benchmark weighting of 42.3%.

"We remain convinced it is right to continue to heavily underweight Japan. We cannot envisage a scenario in which Japan's corporate sector does better than the rest of Asia's over the next 10 years," says Young.

"There may be the odd six months of stellar stock market performance, but we see no reason why such rallies should be sustained and if one occurred the rest of Asia would probably outperform anyway."

Young says the reluctance of companies to lay off staff also makes Japan less appealing than its Asian neighbours.

"The weighted average return on equity for the holdings in our Japan Growth fund is just 4.4%," adds Young.

"While this compares very favourably with that of the corporate sector as a whole, it is very poor compared with the 22% averaged by our non-Japan Asian holdings."