When emotions get in the way of our investments
This time last year, Google searches were simpler and more optimistic, with people wondering ‘What...
Japan is set to be the focus for many around the world in the coming weeks.
The ninth Rugby World Cup – and the first to be held in Asia – kicked off this morning in Tokyo, with hosts Japan taking on Russia. 20 teams from around the world will be battling it out in 48 matches in 12 different stadiums, with the final scheduled in the Nissan Stadium in Yokohama on 2 November.
I had hoped to be there. But after 15 hours and 44 minutes in a queue of 87,464 people, only to be booted out of the payment system at the crucial moment… and forced to start again behind another 63,657 people, in an attempt to get tickets back in January (yes, those numbers are correct and no, I wasn’t successful), as it kicks off this evening, I’m in front of my Samsung TV in the comfort of my own home instead.
Big sporting events are always an attraction for companies wanting to increase their brand exposure, and the Rugby World Cup is no exception. Official sponsors include NEC, Toto and Canon – the latter is a top ten holding in Man GLG Japan CoreAlpha.
Worldwide partners include Heineken (a pint of which is now 49p more expensive for Brits, according to the Brexit Beer Index), Mastercard (a top ten holding in Brown Advisory Global Leaders) and DHL (a top ten holding in TIME:Commercial Long Income fund that has invested in a strategic DHL Supply Chain campus for the East Midlands region).
While the economic impacts of sporting events are usually seen before they even start – with money being spent on associated infrastructure such as stadiums and facilities – tourism definitely gives a short-term boost.
Japan has eased visa requirements, expanded duty free programmes and customs and immigration rules have all changed in recent years to increase visitors. As a result, the number of tourists has tripled in the past five years or so, and both the Rugby World Cup and Olympics next year, will likely push visitor numbers over the 40 million target set by the government.
Companies relating to tourism and Japanese brands – such as Fast Retailing, which operates stores under the name of UNIQLO and is the largest holding in newly rated Comgest Growth Japan – should also be beneficiaries.
But is Japan an attraction for UK investors?
I think MitonOptimal’s managing director, James Sullivan, summed up investor sentiment towards Japan nicely in a recent email entitled: Japathy (noun); lack of interest or enthusiasm in Japanese equities.
Blighted by decades of deflation and a business culture that failed to keep up with other markets, Japan rather faded into the investment background until Abe Shinzo, the current prime minister, started ‘Abenomics’ in 2012 – his extraordinary stimulus programme. Since then, it has come back on investors’ radars, but many have still ignored it.
And the past year has been difficult: the trade tensions between the US and China have affected Japan given its export focus, while there have also been lots of tariffs on steel and aluminium – both of which are key components of its car making industry. Japan is also a big importer of oil, where higher prices of late place greater pressure.
But there are a number of other key long-term themes that are exciting and potentially rewarding.
Matthew Brett, manager of Baillie Gifford Japan Trust, said recently: “The two major current areas of investment for us are internet and factory automation companies. In total, these comprise approximately 40% of the portfolio. For example, we are very enthusiastic about Softbank which we believe has world-class assets, including a large investment in Alibaba and ARM. We also like FANUC, which is a leading global robotics company that has the potential to see accelerating growth, as robotics expands to new industries and applications and where management have begun to return much more cash to shareholders.”
Chisako Hardie, manager of AXA Framlington Japan, also likes a number of long-term themes that are transforming the Japanese economy. In a recent podcast she told us about her investments linked to the globalisation of Japanese food, ageing populations, automation and the increased use of electronics in cars.
Corporate Japan has done a lot to repair its balance sheet and has basically reinvented itself. For example, there is now less of a focus on end products like televisions – it’s now on production equipment instead. So while my Samsung TV might be Korean, the parts inside are very much Japanese.
Perhaps its time Japanese equities became a key component part of investor portfolios once again too.
All fund holdings correct as at end August 2019