Page 10 - DIY Investor Magazine - Issue 27

UNCOVERING JAPAN’S HIDDEN GEMS
Chern-Yeh Kwok, manager of the Aberdeen Japan Investment Trust, says there is real value in Japanese markets, but it is often overlooked by investors.
• Japanese companies are used to dealing with a tough backdrop and their natural caution served them well in 2020
• The Japanese market thrived amid widespread volatility last year, rising 16%
• Japanese companies reflect many of the most important growth themes in the post-Covid environment
In the rush to capitalise on China’s rapid growth, investors have often neglected Asia’s other dominant economy – Japan. Japanese companies are not only beneficiaries of Chinese growth but are plugged in to other key growth themes in
the global economy – digitisation, robotics, electric cars, a rising middle class – yet they remain only lightly explored by investors.
Japanese companies are used to dealing with a tough backdrop. While Japan’s economic backdrop has improved in recent years through the ‘Abenomics’ programme led by then- Prime Minister Shinzo Abe, Japanese businesses have had to fight through a deflationary environment for years.
They tend to be cautiously run with strong balance sheets and prudent management as a result. This made them resilient
in 2020 and meant that the Japanese market thrived amid widespread volatility, rising 16% over the year.
The depth of the markets has also been a real advantage in this climate. Active managers could pick from pharmaceutical or manufacturing giants, right down to small cap components makers, or specialist chemical groups.
‘THE JAPANESE MARKET THRIVED AMID WIDESPREAD VOLATILITY, RISING 16% OVER THE YEAR’
There have also been many ways to invest in significant global themes through the Japanese market: health and technology innovation, for example.
‘JAPANESE COMPANIES HAVE BECOME A BENCHMARK FOR QUALITY’
Japanese companies have played their role in the fightback against Covid-19. Chugai, an R&D-focused drug maker that specialises in niche, but difficult-to-treat conditions has been involved in Covid drug trials.
Japanese companies have become a benchmark for quality, proving adept at using technology to improve quality at lower cost. This has made them the manufacturer of choice across the world, but particularly in China.
The Aberdeen Japan Investment Trust holds companies such as Nippon Paint, which is currently the number one coatings group in China. It is currently benefiting from the widespread home improvement trend, but also looks set to benefit from infrastructure development across the region. Environmental sustainability is also well-represented among Japanese companies. In the Trust, we hold Sanken, which is a leading maker of energy-saving chips and can cut carbon dioxide emissions of household electronics by as much as 30%.
MuRata makes components for electric cars, while Koito makes energy-saving headlamps for cars, which lower energy usage by 40% compared to conventional headlights.
FINDING VALUE
We find Japanese markets packed with opportunities for active investors, yet this opportunity is often poorly understood.
Half of the market has no sell-side coverage, which means information isn’t widely available.
Foreign investors have been net sellers of Japanese markets since 2015. The value in Japanese markets is often overlooked by global investors.
DIY Investor Magazine | Mar 2021 10