Coombs buys Japan ahead of 'strong rebound'

Rathbones’ David Coombs is adding Japanese stocks to his portfolio in the view its economy will rebound quickly from the aftermath of last week’s devastating earthquake and tsunami.

Coombs, head of multi-manager investments at Rathbone Unit Trust Management, says the earthquake has not changed his perception of Japanese stocks: "What has happened has not altered my view - if anything it has made valuations more attractive."

"The Japanese are incredibly resilient to these types of events. They are used to it and will recover more quickly than the US did after Hurricane Katrina, for example. The infrastructure rebuild will not only replace what was there, but enhance it. Overall that will have a positive effect on GDP," says Coombs.

He holds Stephen Harker's GLG Japan CoreAlpha fund in his multi-manager funds, the £28.26m Rathbone Total Return and £44.6m Strategic Growth portfolios.

However, he is hedging the yen out on the basis the currency will weaken in the long term.

"The Bank of Japan will have to pump a lot of cash into the economy and its currency will inevitably weaken as a result, despite the fact it is strengthening in the short term. That liquidity will go back into rebuilding the country and will find its way into the Japanese corporates," he says.

Coombs had a 3% weighting in Japan before the quake and still sees Japan as a strong investment case. He is also bullish on Japan's energy sector, despite the explosions at Fukushima Dai-ichi nuclear plant.

"I do not think the Japanese nuclear industry is dead. There will be a lot of short-term noise, but the trades I am adding now are not short-term positions, I am building a long term strategic position."

Coombs adds there is a danger of extrapolating what is happening in Japan to what is happening in the West. "You only have to look at what happened after Kobe in 1995. The stock market was at a much higher valuation level pre-Kobe than they say it is today so that extrapolation becomes meaningless," he says.

"Japan has not become a poor investment case because of what has happened. If Japan falls another 10% tonight or in two days time then I will be adding a little bit more," says Coombs.