(Bloomberg) -- Evarich Asset Management, whose Japan-focused fund has beaten 96% of its peers this year, is considering increasings its stakes in the nation’s lenders and construction companies after the central bank ended negative interest rates.

Lenders are attractive because their loan margins will increase after the Bank of Japan hiked rates for the first time in 17 years this week, said Yutaka Uda, the president and chief investment officer of Evarich in Tokyo. The monetary policy move is also a sign that the BOJ considers economic growth to be on a solid footing, a plus for builders as well as banks, he said. 

“Some say bank shares may be over for now as major market movers, but there’s no way that’s true,” said Uda, who has overseen Japanese stocks for more than 50 years. “Another rate hike will come in June to September, and in the year-end as well. For the next two years, it’s unavoidable for interest rates to rise.”

The top holdings of his Nippon Growth Fund include Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. The ¥17 billion ($113 million) fund has returned more than 22% so far this year, compared with an 18% rise in the broad Topix equity gauge. 

Uda’s strategy stands in contrast to global investors ranging from JPMorgan Asset Management to Nomura Asset Management. They had grown cautious about adding more bank stocks to their portfolios due in part to the sector’s stretched valuations, before the BOJ’s policy announcement on March 19. The Topix banks index dropped in the run-up to the central bank’s rate decision after steady gains in the past year, but it jumped 3.2% in the first full session after the BOJ move.  

 

Top Fund Managers Snap Up Japan Banks on BOJ Tightening Bets

The money manager also plans to invest more in Japan’s construction companies. The fund currently holds Obayashi Corp. and Kajima Corp. Apart from benefiting from the nation’s resurgent economic growth, Uda expects the companies to get a boost from more government spending on defense and infrastructure. He’s putting money in a sector that’s lagged the overall market over the five years, with price-to-book ratios of builders at 1.2 times, compared with 1.5 times for the Topix. 

The driver of economic growth is shifting to infrastructure investment from information technology, and that’s contributing to an inflationary environment, Uda said. Long-term yields could rise to 1.5-2% in two years as labor shortages may push prices higher, he said. Japan’s benchmark 10-year government bond yield was around 0.74% on Thursday.

Japanese companies have begun spending cash that piled up during decades of deflation, the fund manager said. As the cash is being used for capital expenditures, wage hikes and shareholder returns, “the Japanese economy is entering a new high-growth era for the first time in 30 years,” he said. 

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