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.
-
Car tax rules are changing: what are the new vehicle excise duty rates?The rules around vehicle excise duty are changing this April. What are they, and how are they going to affect you?
-
Most affordable cities for single homebuyers revealedBuying a home by yourself? Analysis by Zoopla reveals the most affordable cities in the UK
-
Three companies that dominate their markets with critical productsA professional investor tells us where he’d put his money. This week: Charlie Huggins, manager of Wealth Club’s Quality Shares Portfolio, picks three stocks.
-
Should you continue to hold Smithson Investment Trust?Opinion Smithson Investment Trust, a small- and mid-cap fund, has struggled to live up to lofty expectations, says Rupert Hargreaves.
-
Primark owner Associated British Foods is an overlooked gem going cheap — should you buy shares?Associated British Foods, the owner of Primark, is a family-owned business, which means it is passed over by the increasingly popular passive investment funds. That spells opportunity for private investors, says Jamie Ward.
-
Trump's tariffs and a shrinking market for alcohol deal double blow to DiageoDonald Trump's tariffs are a further headache for drinks giant Diageo, which is already being buffeted by a decline in alcohol consumption.
-
Three stocks in recruitment companies with promising recovery playsRecruitment agency Robert Walters and its peers are struggling, but now's the time to buy, says Rupert Hargreaves
-
Four UK data companies to buy nowCompanies that create, harness or turn data into a valuable offering could be sitting on a hugely profitable gold mine. Rupert Hargreaves picks four of the best UK data companies to buy now.
-
What’s the outlook for the shipping industry in 2025?All we know for certain about the year ahead is that it will be volatile. But the container shipping sector thrives on choppy waters
-
What investors can expect from stocks and the economy in 2025There are reasons for investors to be hopeful about 2025, with slowing interest rates and moderating oil prices. But trouble may be brewing in bond markets
