Best and worst performers in '94

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THE Japanese stock market was one of the few to prosper last year, writes Caroline Merrell. The start of recovery in the Japanese economy was reflected in the top-performing unit trusts over one year. Of the top 50 unit trusts (out of a total of 1,324), 45 were funds invested in the Japanese market - the Independent on Sunday's tip for 1994.

On average, £100 invested in a Japanese unit trust a year ago would now be worth £106.27 including charges, while the overall unit trust average slumped to £89.28 over the year.

By contrast Hong Kong, the top-performing market in 1993, was one of the worst performing last year. The rises in US interest rates over the year hit the Hong Kong stock market especially hard; it has a high number of financial and property companies, which are very sensitive to changes in rates.

The bottom-performing unit trusts over the year tended to be funds with a significant exposure to this market. For instance, Gartmore's Hong Kong fund is entirely invested in the colony. Anybody who put £100 in this fund at the beginning of the year, when the Hang Seng index was at a record high, would have lost nearly 40 per cent of his or her money. On the other hand, the Gartmore fund is the top-performing unit trust over five years. An investment of £100 at the start of 1990 would now be worth £355.

Dennis Clough, a fund manager with Schroders, which manages a lot of money in Japan, said: "Japan has been behind the rest of the world in terms of recovery. It has had to catch up. It has been way behind Europe and the US. The economy has been boosted by income tax cuts and a recovery in confidence. The companies that have been most helped by recovery have been electrical companies and companies aided by increased consumer demand."

Mr Clough said he expected the recovery in Japan to continue this year. "We are expecting a big increase in company profits this year. We think that profits are going to rise by about 50 per cent in Japan this year."

Kevin Gibson, Edinburgh investment manager, said there was a substantial currency risk for anyone planning to invest in the Japanese stock market over the year. He said he expected the yen to weaken, which would reduce returns to UK investors.

UNIT TRUSTS Top 20 over one year £ 1 Hill Samuel Japanese Technology 122.43

2 Schroder Inst Jap Smaller Companies 118.01

3 Prudential Japanese 117.67

4 Dimensional Japanese Smaller Cos 117.54

5 Mercury WT UK Equity 116.56

6 Edinburgh Tokyo 115.42

7 Waverley Penny Share 115.08

8 Mercury WT European Equity Bear 115.07

9 S&P Japan Growth 114.51

10 Scottish Amicable Japanese 113.68

11 Hill Samuel Japanese General 113.34

12 Govett MIS Japan Index 113.20

13 Clerical Medical Japan Growth 113.13

14 Mercury WT Japanese Equity Bull 112.87

15 NatWest Japan 112.80

16 London & Manchester Japan 112.53

17 Schroder Tokyo 112.53

18 Baring Korea 112.40

19 NM Japan Smaller Companies 112.31

20 Invesco Japanese Smaller Companies 112.61

Bottom 20 over one year 1305 Mercury Pacific 71.63

1306 S&P South-East Asia Growth 71.01

1307 S&P Eastern Discovery 69.21

1308 Lloyds Bank Pacific Basin 69.13

1309 Morgan Grenfell Asian Trader 69.04

1310 Edinburgh Latin America 68.75

1311 Lincoln South-East Asia 67.80

1312 Jupiter American Capital 67.53

1313 GT American Orient 66.42

1314 Prosperity Emerging Market 65.63

1315 Thornton Little Dragons 65.39

1316 OM CAM Pacific 64.93

1317 Invesco Hong Kong & China Growth 64.48

1318 S&P China Dragon 63.49

1319 Gartmore Hong Kong 61.05

1320 S&P Asian Smaller Companies 60.51

1321 HSBC Hong Kong Growth 60.46

1322 Old Mutual Hong Kong 60.04

1323 Waverley Canadian Balanced Growth 55.89

1324 Beckman Biotech 53.43

Table shows value on 26 December of £100 invested on 3 January, offer to bid with net income reinvested. Source: Micropal