Japan – Feature
JAPAN: THE SUN RISES BRIGHTLY
Japan made global headlines at last year’s world cup after beat- ing Germany and Spain. In 2023, the country could spring another surprise, but this time not on the football field. Its investment markets are where the country could shine this year and beyond. Japanese stocks are expected to benefit from a combination of low valuations and idiosyncratic tailwinds, which could trans- late into 11% gains this year on the TOPIX, the index which tracks domestic stocks listed on the Tokyo Stock Exchange’s prime market, Morgan Stanley believes.
And it appears that investors are anticipating a strong perfor- mance with more than $7bn (£5.7bn) pouring into Japanese equities in December alone. Such bullishness is expected to continue and for good reason. “In 2023, we expect Japan’s equity market will continue to prove itself a strong platform to invest in Asia,” says Richard Kaye, portfolio manager of the Comgest Japan Equity Strategy. “Its companies are heavily exposed to the pan-Asian market as providers of key technologies, from automation to semi-con- ductor equipment, and from electric vehicle engines to diagnostics.” Japan has, Kaye believes, the strongest aspirational consumer brands in Asia. This he bases on “its history, geography and convenience – with strong scores on liquidity, governance, bal- ance sheet strength and listed history”. This would put Japan in an elevated version of the different path portfolio institutional highlighted it was on in September last year. In the piece, we concluded that Japan is not just an outlier, but a potential alternative to the woes evident else- where in the investment world.
A strong start On this theme, Ken Maeda, head of Japanese equities at Schroders, highlights how the country has emerged into the new year in a strong place. “Japan entered 2023 as a clear out- lier among developed markets in terms of the outlook for eco- nomic growth, monetary policy and inflation,” he says. One in which on-going developments do not hinder but boost
its standing. The lifting of Covid restrictions on visitors to the country is one. “With the domestic economy finally re-open- ing, we see many companies well-positioned to continue to grow profits in the coming year,” Maeda adds. Another asset manager told portfolio institutional that Japan looks relatively resilient due to solid corporate earnings from the economy’s re-opening, attractive valuations and smaller inflation risk compared with other markets. Such a positive outlook is given further credence by Hiroyuki Ueno, chief economist at SuMi TRUST, one of Japan’s largest asset managers, who identifies the sectors he believes could benefit. “2023 will bring challenges but the Japanese economy is firmly on the road to recovery and is set to expand,” he says. “Expansion will be mainly due to a rise in capital investment in industries that were partially suspended in 2022 due to supply constraints – such as semi-conductors – and growing private consumption, driven by the resumption of economic activity, particularly in the service sector, following the Covid pandemic.”
Opportunities for investors, therefore, look good, potentially in a big way. What could emerge is a focus on real growth – con- necting investors to applicable companies that have real growth appeal.
Kaye nails these down as key points of investor interest across different sectors. “In our view, the top 1% of Japanese compa- nies – like Dexerials, Lasertec, Sysmex, Toray and Sumitomo Metal, offer unique technology in diagnosis, aerospace or elec- tric vehicles – are attractive,” he adds.
Societal changes In addition, changes in Japanese society, such as more women entering the workforce, are causing old industries to rational- ise, lifestyles to evolve and the country to accelerate its already advanced efforts to generate cleaner energy. Again, Kaye identifies companies of interest. “The companies that aim to capture these growth trends include Recruit, a human resources group helping women return to the work- force; NTT Data, an IT services and consultancy group benefit-
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