Optimal Region

Japan

As the world's second largest economy and an integral part of the global economy, Japan's fortunes affect us all.

The often tumultuous events of the late 1990s have forced many changes in Japan that we strongly believe will deliver positive returns for investors in Japanese equities.

The importance to investors of taking the right investment stance on Japan cannot be overstated. It is not a market that rewards amateurs or casual investors. Sound investment requires a strong understanding of Japan's economic and market structures and an ability to fathom the changes in attitude that will determine who wins and who loses in the new environment.

It scarcely needs repeating that Japan has had a thoroughly testing time since the asset inflation "Bubble" burst at the end of the 1980s. The benchmark Topix index remains at barely one-third of the level it reached in December 1989 - despite an increase of more than 40% since its lows of early 2003 and the passage of fifteen years. No other country in the modern era has experienced asset and price deflation of this magnitude and duration, but the adjustments to this unprecedented wealth destruction - although incomplete - are well under way.

As this process of profits recovery and balance sheet repair accelerates, we are confident that we will find investments in Japan that are highly attractive in an international setting. Optimal's excellent record in stock-picking affords investors the chance to benefit from the rehabilitation of Japanese equities and to generate a return in excess of the broader market.

Asia

Approximately 60% of the world's population is located in Asia. This, coupled with robust economic growth, makes the Asian region increasingly important within the global economy. The developing capital markets in Asia will assist the growth of the private sector and this will create opportunities for investors. Despite its investment attractions, the Asia Pacific markets (excluding Japan) account for less than 6% of the FTSE world index. With continued economic growth, this weighting is bound to rise.

Optimal has over six years' experience in managing long/ short products. We believe that strong research synergies exist between our Asian and Japanese products, not least because of our experience in analysing similar developments in the Japanese markets.

The Investment Team has been visiting Asia over the past three years, attending company meetings and building up our knowledge base.

With our strong record of finding great investments in the small and mid cap segments, we find Asian markets attractive to stock pickers. Whilst the percentage of listed companies covered by sell-side analysts in the region has declined from a peak of 60% to 35%, the opportunities for diligent stock pickers have multipled.