How the pandemic has changed Japan
Japan had reason to celebrate last week, when Hideki Matsuyama made golfing history. The 29 year old...
In part two of this two part series, we asked the managers of some of our Elite Rated and Radar Investment Trusts for their views on which are the most exciting opportunities in their asset classes today.
Here’s what they had to say about Eastern markets:
*Richard Sennitt will take over portfolio management responsibilities for the Schroder Oriental Income Fund Limited from 31 December 2020.
“Asian companies went into this COVID induced slowdown in better shape than many other regions with lower dividend payout ratios and better balance sheets. So although dividends have been cut, the region has avoided some of the worst of the resetting of dividends seen in other markets. Also, despite these cuts, yields still look attractive versus bonds in most markets across the region.
“Furthermore, with Asia emerging from the initial COVID lockdowns quicker than elsewhere, the rate of downgrades to earnings has slowed recently and, although very COVID dependent, if this trend continues could present a better backdrop for dividends next year. Opportunities continue to be found in contrasting sectors such as the technology and property sectors. In technology, continued investment in data centres, 5G and the internet of things has driven demand from Korean and Taiwanese hardware names, whilst in property some of the Hong Kong value names have an opportunity, in the medium term, to grow their recurring profits and dividends helped by their Chinese investment property expansions.’
“I continue to have a core focus on consumer and technology-related companies, which I expect to benefit from the domestic Chinese structural growth drivers; in fact, the portfolio is almost exclusively focused on the domestic Chinese economy, with 86% of revenues currently derived from Greater China (China, Hong Kong and Taiwan).
“Earlier this year (in March), I also established a new position in Pony.ai, an unlisted company that is China’s leading autonomous driving technology company, based in Silicon Valley and China. The company is one of five leading global players in this fledging industry, where competition by new entrants is limited by high capital requirements and the technological advances realised by existing players. I’m impressed by Pony.ai’s management team and by its strategic partnerships with leading car manufacturers, including Toyota and Hyundai.”
“There are several structural factors that combine to create a fruitful opportunity for bottom-up, long-term growth investors, including: the myopic focus on macro factors such as debt and demographics; the often misunderstood enigmatic nature of culture and customs; and the cyclicality of the market. A discerning and patient approach allows us to circumvent these issues, by identifying inimitable idiosyncratic opportunities that exist only in Japan. Examples include internet infrastructure company GMO Internet, a company offering an array of online services for Japan’s latent adopters of ecommerce. This picks and shovels internet business has seen significant success as a result of the pandemic, as businesses have scrambled to adapt to an explosion of demand for online services.
“Another example is Nidec, a global leader in the manufacture of small motors. The ubiquitous importance of these devices has allowed Nidec to profitably pivot from one product market to the next, most recently towards the burgeoning demand for energy efficient EV traction motors. Both examples are emblematic of the opportunities available within Japan, whether it be from the low hanging fruit of disruption and digital disintermediation, of from access to global leaders in an array of esoteric fields.”
“Technological innovation has precipitated an abundance of opportunities within the Japanese small cap space. The capital-light requirements for an online business have allowed many to emerge as a formidable challenge to the sleepy offline inefficient incumbents – that often characterise many Japanese corporates. Examples include Raksul, a cloud-based printing and on-demand logistics business, that undercuts its competitors by efficiently distributing demand across its network of unutilised (smaller supply-side) partners. Bengo4.com is another example. It aims to redress the historically self-serving Japanese legal industry by offering an online legal portal with transparent pricing and fuller information. Early success has seen it move into adjacent areas, including CloudSign, an e-contract service which has proved particularly popular as a result of the pandemic.
“Another beneficiary of recent behavioural changes include Demae-Can, Japan’s leading online food delivery service. The convenience and ease of ordering food through a smartphone, combined with a healthy appetite for eating out should be complementary towards the rapid rise of online food ordering in Japan, from currently low penetration levels. In common with other early-stage opportunities Demae-Can is run by a young and dynamic President who has strong alignment with our long-term aspirations for growth.”
Find out what our Elite Rated and Radar managers had to say about Western stock markets and specialist sectors in part one of this series.