Page 12 - DIY Investor Magazine | Issue 36

Dec 2022 12
DIY Investor Magazine ·
JAPAN - A DIFFERENTIATOR IN TUMULTUOUS TIMES
The world seems a particularly unnerving place for investors
at present, even by recent standards. High inflation, rising interest rates and the associated risk of recession in some major economies have generated high levels of financial market volatility.
The war in Ukraine is driving up energy and commodity prices, compounding inflation pressures, while world leaders and political pundits assess the likelihood that Russia will escalate the conflict by deploying tactical nuclear weapons.
In China, the government has spooked markets with surprise crackdowns on property developers and internet companies and heavy-handed, but seemingly futile, zero-covid restrictions which are damaging the economy.
In the UK, the ongoing political battle has weakened equity markets, seriously destabilised the bond market and driven the pound to a forty year low against the US Dollar.
Against such a background, Japan’s stable liberal democracy, strong rule of law, regulatory predictability, low inflation environment, and ongoing commitment to digitalisation appear to offer a balm for investors’ jangled nerves, and many associated investment opportunities.
In addition, the cash reserves of Japanese companies
far exceed those of US and European businesses. This is especially reassuring at a time when many major economies face recession.
EXTENSIVE LOCAL RESOURCES GENERATE ALPHA
JPMorgan Japanese Investment Trust (JFJ) is one of the largest and oldest closed-end funds offering investors access to the Japanese equity market.
‘A BALM FOR INVESTORS’ JANGLED NERVES, AND MANY ASSOCIATED INVESTMENT’
The company adopts a high conviction, long term approach, seeking out high quality, innovative Japanese companies from across the market cap spectrum that are leading the world in growth industries such as e-commerce, robotics and computer gaming.
JFJ is managed by a Tokyo-based team of 25 Japan investment professionals, providing the vital local insights needed to uncover value in an under-researched market. Such extensive, on-the-ground resources give JFJ’s managers a significant competitive advantage in their efforts to deliver excess investment returns over the long-term.
RECENT PORTFOLIO CHANGES AND POSITIONING FOCUSED ON GROWTH
Although the Japanese economy is not afflicted by the same risks of inflation and rising interest rates as other major economies, its equity markets have not escaped the same broad-based correction experienced elsewhere.
Even the quality companies which are JFJ’s focus have come under pressure, despite the fact that their favourable long-term growth prospects remain unchanged. For JFJ’s managers, the market decline has therefore created many new opportunities to move money into top quality growth businesses at more attractive multiples.
Recent acquisitions have included AIN Holdings, which operates retail pharmacies and is benefiting from deregulation of this historically fragmented market. For example, chemists are now permitted to operate inside large hospitals, allowing them to increase market share and scale up operations by offering a more conveniently-located service to consumers.
JFJ’s managers have also invested in JSR, a market leading producer of specialist chemicals, including for use in electronic components, Nippon Sanso, Japan’s major industrial gas manufacturer, and Nippon Paint, which has a dominant market share in Japan and China.