New Era Bodes Well For Japanese Companies

1 July 2019

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For investment professionals only. Not for further distribution

Quality Bias Can Shield Against Trade Tensions

As well as market-specific drivers, the condition of the global economy remains a key factor supporting the Japanese equity market. An environment of modest global growth should continue to help corporate Japan perform well. We are, however, mindful of the trade-related tensions between the world’s two largest trading partners, China and the U.S., and any escalation here is a key risk. While the ideal scenario is that trade war concerns subside and sanctions are lifted, we believe the quality bias within our portfolio holds it in good stead should the trade situation deteriorate.

Risks

The following risks are materially relevant to the portfolio.
Currency risk– Changes in currency exchange rates could reduce investment gains or increase investment losses. Small and mid-cap risk– Stocks of small and mid-size companies can be more volatile than stocks of larger companies. Style risk– Different investment styles typically go in and out of favour depending on market conditions and investor sentiment.

General Portfolio Risks
Capital risk– The value of your investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the portfolio and the currency in which you subscribed, if different. Equity risk– In general, equities involve higher risks than bonds or money market instruments. Geographic concentration risk– To the extent that a portfolio invests a large portion of its assets in a particular geographic area, its performance will be more strongly affected by events within that area. Hedging risk– A portfolio’s attempts to reduce or eliminate certain risks through hedging may not work as intended. Investment portfolio risk– Investing in portfolios involves certain risks an investor would not face if investing in markets directly. Management risk– The investment manager or its designees may at times find their obligations to a portfolio to be in conflict with their obligations to other investment portfolios they manage (although in such cases, all portfolios will be dealt with equitably). Operational risk– Operational failures could lead to disruptions of portfolio operations or financial losses.

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