Trade Update: Changing tides in Japan

On Friday, we made trades in our Offshore strategy with the intention to increase the strategy’s net exposure (deploying more of our strategic cash). We initiated a new position in the iShares MSCI Japan ETF (EWJ) in an effort to gain broad exposure to a fast-growing economy with strong multi-year tailwinds.

We also added to a handful of Offshore’s existing holdings including Cameco Corp (CCJ), MercadoLibre (MELI), and Vista Energy (VIST), while trimming our positioning in Peabody Energy (BTU). 

The results of the move have increased the strategy’s net exposure by over 9%. The table below details these moves. Let’s dive in.

Changing tides in Japan

Japanese equities have been out of favor for decades as concerns over economic growth, persistent deflation, and corporate governance have left the asset class under-owned by investors and under-researched by analysts. While the Nikkei has shown pretty strong performance over the past 10 years (+121% vs. SPX +163%), it is still well below its 1989 peak.

In the most traditional sense, inflation has been a source of concern for many economies but, it’s a different story for Japan. The economy has long grappled with deflation and low growth; yet, the country has seen several months of rising CPI data, suggesting that modest inflation may be reemerging, which should result in a strong tailwind for equities. Importantly, recent data highlighted the greatest monthly wage growth since 1997 which should support consumer spending and economic growth. 

With a renewed focus from the Japanese government on improving corporate governance, a favorable interest rate environment, and the economy transitioning to a new inflationary regime, we believe the tides have changed and Japanese equities may be in a position to continue outperforming other international markets. An investment in the iShares MSCI Japan index provides us broad, diversified exposure to Japanese equities while reducing our underweight relative to the benchmark.

Adding south of the equator

As most central banks continue to raise interest rates to combat inflation, the Brazilian Central Bank is expected to cut rates in the coming months to spur economic growth. With a constructive macroeconomic backdrop, consistent execution, and market share gains, we elected to add to our positioning in MercadoLibre (MELI).

Our thesis for Vista Energy (VIST) has been tracking nicely as production output is outpacing expectations and costs remain under control. We believe a new administration may be constructive for the Argentine energy company and elected to add to our positioning ahead of the country’s primary elections in mid August. 

Controlling the edges

We believe our thesis surrounding Cameco Corp (CCJ) has reached an inflection point ahead of an expected ban on Uranium imports from Russia as we approach year end. Given the strong data showing accelerating contract activity signed with $50 price floors, continued supply disruptions, and improving company fundamentals, we took the opportunity to add to our positioning here.

We elected to trim Peabody Energy (BTU) following disappointing results surrounding the company’s shareholder buyback program. A small trim here allows us to keep our energy exposure in check while adding the proceeds with confidence across other names in the strategy. 

These trades increase our net exposure by ~9% and puts a good portion of our dry powder (strategic cash) back to work overseas. We plan to be opportunistic in the coming weeks as we work through earnings and digest new macroeconomic data.

As always, let us know if you have any questions about the recent trades; we’re happy to assist.

–Your Titan Team

Disclosures:

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Please refer to Titan's Program Brochure for important additional information. Titan’s affiliate, Titan Global Technologies LLC (“TGT”), is a registered broker-dealer and member of FINRA/SIPC. Contact Titan at support@titan.com.

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