Page 7 - DIY Investor Magazine | Issue 34

Recent earnings reports for the Japanese corporate sector have been buoyant, with lots of companies reporting profit increases, and a large number announcing share buyback programmes.
Dividends have been another area of strength.
At the same time, global investors have still not re-embraced Japanese markets. While there are signs that global asset allocators are turning their attention to the country again, valuations are still attractive for Japan after a long period out
of favour. This is particularly true where companies possess resilient business models, strong balance sheets and structural improvements in governance, the natural hunting ground for abrdn Japan Investment Trust.
GLOBAL TRENDS
As we see it, Japanese companies are embedded in
some of the most exciting global trends. For example, it is possible to find world-leading companies in the all-important semiconductor supply chain.
Japanese prominence in robotics is likely to be rewarded as factory automation becomes an increasing priority to counter wage inflation.
‘JAPANESE COMPANIES ARE EMBEDDED IN SOME OF THE MOST EXCITING GLOBAL TRENDS’
Japanese car makers have been early and successful proponents of electric vehicles (EVs). Toyota Motor, for example, has recently committed to release 30 different EV models by 2030, up from 15.
It hopes to sell 3.5 million battery EVs globally by 2030 and to transform Lexus into an EV-only brand by 20351.
Prime Minister Kishida is a bold supporter of these trends.
His ‘new capitalism’ proposal is based on four key pillars: innovation – promoting Japan as a science and technology nation; Digital Garden City Nation vision – the advancement of Japan’s digital capabilities; tackling climate change – through a focus on clean energy and gradual de-carbonisation; and economic security – enhanced support for research and development in cutting edge technology2.
In our portfolio, we were already invested in Toyota, but more recently we have positions in Ibiden and Kohoku Kogyo. Ibiden is a manufacturer of packaging substrates that protect semiconductors. We expect a rapidly growing end-market and are encouraged by the improved business mix achieved over recent years, with reduced reliance on cyclical applications such as smartphones.
Kohoku Kogyo is the global leader in manufacturing of key components used in submarine optical cables and automotive aluminium electrolytic capacitors. The company’s integrated production system and its ability to produce everything internally from raw materials to equipment enables the company to maintain its moat.
The president, who comes from the founder’s family, is keen to establish a third pillar of growth, leveraging the company’s existing technologies.
Companies with strong business models and management teams have coped and even thrived in the last two years, even if that hasn’t always been reflected in share prices. Alongside structural improvements in governance in Japan, we remain resolute in our belief that these companies should do well whatever the broader economic conditions.
Companies with a good potential runway of growth and competitive strength should be at a notable advantage today. Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
1 https://www.theverge.com/2021/12/14/22833997/toyota-ev- investment-lexus-concept-vehicles
2 https://www.hl.co.uk/news/articles/Japan-stock-market-and- funds-review-bullish-end-to-the-year-of-the-ox
More information on abrdn Japan Investment Trust PLC here >
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DIY Investor Magazine · July 2022