A professional investor tells us where he’d put his money. This week, Nicholas Price, portfolio manager of the Fidelity Japan Trust, highlights three favourites.
Japan’s delayed reopening and the return of tourists are supporting growth in consumption and demand for services. The economy is also transitioning to a moderately inflationary state as companies are increasing wages and finding it easier to raise prices. There is growing pressure on firms to enhance their corporate value and use excess cash to increase investments and shareholders’ returns.
We are also seeing the rationalisation of corporate structures and reductions in cross-shareholdings. While signs of weakness in China’s recovery and the risk of a US recession are potential headwinds, this accumulation of positive factors is supportive of the mid-to-long-term outlook for the Japanese market.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In terms of investment opportunities, Japan’s technology and materials sectors hold promise. Globally competitive companies in semiconductor equipment and electronic components are trading on compelling valuations as we approach the trough of the cycle. There are also niche chemicals firms that command dominant positions in their global markets yet continue to fly under the radar. Another area of the market that I would highlight is the mid-and small-cap growth segment, which is trading at cheap valuations.
Osaka Soda (Tokyo: 4046) is a chemicals company that has transformed its portfolio from highly cyclical, commodity products to more secular growth solutions. Since 2010 the group has expanded its healthcare business and has established a dominant position in chromatographic purification materials, a vital process for the manufacture of GLP-1 and insulin drugs. With GLP-1 drugs, which help manage blood sugar (glucose) levels in patients with Type-2 diabetes, further expanding into obesity treatment, the company is well positioned to meet the rapid growth in demand from global drug makers. Furthermore, the group’s profitability and free cash flow generation have shown a remarkable improvement owing to the high-profit margin of its purification-material business.
Chemicals group NOF (Tokyo: 4403) commands dominant positions in niche markets, underpinning stable growth in earnings and a high level of profitability. Its core businesses include surfactants (inputs for toiletries and cosmetics) and drug-delivery systems (DDS), which are utilised in mRNA medical technology. While the stock has yet to receive the full recognition it deserves given the strength of its fundamentals, our engagement with management has helped to deliver improvements in disclosure relating to the group’s finances and its environmental and social governance (ESG) policies. We think that enhanced communication with the market and the unwinding of cross-shareholdings will support a re-rating.
Flourishing funeral service firm Kosaido (Tokyo: 7868) is a funeral service operator in Tokyo. The company owns and runs six crematoriums and funeral halls in prime locations. The cremation business boasts an effective monopoly position and high profit margins owing to limited land supply and barriers to new entrants. Moreover, Japan’s ageing society and the net influx into Tokyo will drive demand for cremation over the long term. Meanwhile, Kosaido is starting to utilise its property to expand the funeral-ceremony rental business, aiming to cross-sell its cremation and funeral services. Given its central location and cost advantages, Kosaido should continue gaining share in the funeral services market.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Why undersea cables are under threat – and how to protect themUndersea cables power the internet and are vital to modern economies. They are now vulnerable
-
Japan’s medium-sized stocks provide shelter from trade warsNicholas Price, portfolio manager of Fidelity Japan Trust, tells us where to invest in Japan
-
India's stock market drops - why it's thrown investors into frenzyNifty 50, India's stock market index, has dropped 8% from a September record amid concerns of an economic slowdown and foreign investors pulling out
-
Warren Buffet invests in Domino’s – should you buy?What makes Domino's a compelling investment for Warren Buffet's Berkshire Hathaway, and should you buy the UK-listed takeaway pizza chain?
-
4Imprint makes a strong impression – should you buy?4Imprint, a specialist in marketing promotional products, is the leader in a fragmented field
-
Invest in Glencore: a cheap play on global growthGlencore looks historically cheap, yet the group’s prospects remain encouraging
-
Should you invest in Trainline?Ticket seller Trainline offers a useful service – and good prospects for investors
-
Key takeaways from the MoneyWeek Summit 2024: Investing in a dangerous worldIf you couldn’t get a ticket to MoneyWeek’s summit, here’s an overview of what you missed
