Although Japan may not be getting the economic boost normally associated with the Olympics, this is still a good time for U.S. investors to put money into Japanese companies, according to Kwok Chern-Yeh, head of Japanese equities at Aberdeen Standard Investments, an asset management firm based in Philadelphia.
The country’s economy is recovering post-Covid and has some hidden investment opportunities, Kwok said via email from his base in Japan. Kwok also is portfolio manager for the Japan Equity Fund, a closed-end fund with investments in the likes of Toyota, Sony and Shin-Etsu Chemical.
Japan’s manufacturing activity is picking up as economies globally start to reopen from pandemic-enforced shutdowns. In addition, of the more than 2,000 stocks in the Topix Index, which is part of the Japanese stock exchange, “more than 40% are not covered by analysts, allowing active investors to find hidden value in the market, especially among smaller firms,” he said. “One in seven stocks in Japan rose by 500% or more in the decade ending in September 2020.
“Contrary to common external perceptions, Japan offers a rich source of investment opportunities,” Kwok said. “We see promising areas of structural growth such as digital transformation, interconnectivity and health technology. Innovative Japanese medical equipment firms continue to invest in research and development to maintain a competitive edge.”
He noted that investors can anticipate a rebound in domestic spending as vaccinations gather pace and Japan’s economy reopens for business. On the international front, Kwok pointed to a surge in Japanese exports to China and increasing exports to the United States and Europe.
“This serves as a timely reminder that Japanese companies are highly leveraged to recover in the global economy, across industries from autos to semiconductor-making equipment," he said, adding that Japan is a global pioneer in automation technologies, notably robotics and manufacturing automation.
Kwok particularly likes businesses in Japan’s electric vehicle and healthcare sectors. He pointed to companies such as Amada, which makes machines for processing sheet metal; automobile lighting specialist Ichikoh Industries and semiconductor-maker Sanken Electric.
“Another key factor for investors is that, by necessity, Japanese businesses have built strong capital positions to counter domestic economic difficulties,” he said. “This enables them to capture opportunities as conditions improve. Now we are seeing a broad-based pick-up in corporate spending as businesses that had put expansion plans on hold amid the pandemic look to invest in their own growth. This is designed to drive profitability, which is likely to be positive for share-price performance over time.”
Japanese companies that have taken strong positions on environmental, social and governance issues, which can provide a degree of risk management, include Takuma, a leading biomass power and waste incineration plant provider whose products help cut carbon dioxide emissions, and Sanken Electric, which makes energy-saving chips that reduce CO2 emissions.