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Is it time to invest in Japan?

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Written by: Emma Lunn
20/09/2019
All eyes are on Japan as the country gears up for the Rugby World Cup kick off.

Japan’s rugby team are among the favourites to win the Rugby World Cup but the country has not been a favourite for investors in recent years due to two decades of economic stagnation.

But experts say Japan has been given a new lease of life in recent years with the country’s shares currently looking good value.

Teodor Dilov, investment research analyst at The Share Centre, said: “Once a firm favourite in every growth investor’s starting line-up; the country was plagued for over two decades by sinking wage growth, deflation and equity and property markets close to record lows.

“Since the election of Shinzo Abe in 2012 it has been in a period of reform, with many new policies seeking to enhance corporate governance standards among Japanese businesses. The conversion of corporate codes has gone some way to encourage increased research and development investment, improved transparency and higher return on equity.

“Under ‘Abenomics’, Japan’s economy is benefitting from rising real GDP, falling unemployment and female workforce participation rising – giving Japan its longest expansion since the war.”

Dilov added that cheap valuations against both historical figures and other global markets make Japanese stocks a strong source of attractive long-term investments.

Dilov recommends the following investment funds which offer exposure to Japan:

Legg Mason Japan Equity

Managed by one of the most prominent experts in this field, Hideo Shiozumi, this fund has an extremely successful track record of delivering excess returns over the full market cycle.

Hideo is ex-manager of Japanese investment at George Soros’s funds and currently runs a concentrated portfolio of across the market cap invested strategy. The fund aims to achieve capital growth through investment in securities of Japanese companies.

Lindsell Train Japanese Equity

This is a slightly more conservative fund, which seeks to appreciate its shareholders’ capital over the longer term by investing in a highly concentrated portfolio of equities.

“The manager, Michael Lindsell, has intimate knowledge of his stocks due to the rigorous screening process, leaving him with a smaller pool to choose from. The fund has outperformed its benchmark and opposition both over a short and long-term,” said Dilov.

First State Japan Focus

This fund’s lead manager, Sophia Li, adopts a disciplined approach focussed on investing in shares of large and mid-sized businesses in Japan.

These companies should generally have a total market size of at least $1bn. A dedicated Japanese equity team, who speak the native language, regularly scrums down in direct meetings with company management to fully understand the quality, growth and valuation of a company. The fund’s portfolio could be very concentrated depending on manager’s market outlook and conviction.

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