Three hidden gems from the Japanese stockmarket

Professional investor Nicholas Price of the Fidelity Japan Trust picks three smaller sized growth companies from Japan that he thinks have been overlooked by investors.

Japan is the world’s third-largest economy and home to global industry leaders in areas such as automation and medical tech. However, many companies remain under-researched, so those prepared to explore lesser-known areas of the market can find promising stories. I believe that a rigorous, bottom-up approach to active management can consistently identify companies where the market is underestimating or mispricing future growth, or there is a clear disconnect between near-term sentiment and mid-to-long-term fundamentals.

I tend to invest in small and medium-sized growth companies where I can find better business models and returns on equity, and management is more incentivised in terms of shareholder returns. Smaller companies, being relatively young and dynamic, are often able to create their own niche market and so may be able to grow regardless of the economic backdrop. Managers like myself, based here in Japan, have the opportunity not only to invest in established global leaders, but also to unearth less well-known companies (sometimes before they are listed), where lower levels of analyst coverage can often lead to great mispriced opportunities. 

A great translation tool

Rozetta (Tokyo: 6182) offers online machine translation services – faster than human translators, at a tenth of the cost – to sectors including the medical, financial and legal industries. Its business metrics are impressive, with limited churn and high annual recurring revenues. It is shortly coming out with a new suite of products which should help it to penetrate the corporate manual market and is enhancing its distribution model to reach new customers. In future, I expect the development of machine-learning translations and even voice-based technology to be invaluable for Japanese companies where limited English language ability can often be a barrier. 

A play on healthier lifestyles

Shimano (Tokyo: 7309) is a global leader in bicycle components and fishing tackle. It is a long-standing, high-quality business with a solid management team which is taking steps to improve its environmental, social and governance (ESG) credentials. It is the dominant brand in the bicycle components market, due to its innovative technologies, high-quality products and strong aftersales service, so it should be a major beneficiary of the rising popularity of cycling in an increasingly environmental and health conscious world (a trend only reinforced by the Covid-19 pandemic and resulting avoidance of public transport). E-bikes also represent a new growth opportunity.

A turnaround medical tech play

Olympus (Tokyo: 7733) is a global leader in gastroenterological endoscopes. It is driving through structural change and improved governance via its “Transform Olympus” restructuring plan. A new chief executive took over in 2019, with a focus on optimising the medical device business, shrinking non-core operations (including the sale of its loss-making camera business), and improving cost controls. Olympus is also launching a new product cycle, featuring a next-generation endoscopy system that enables early detection and diagnosis through enhanced imaging quality. Its shares trade at a discount to its global peers despite these changes, suggesting attractive upside potential.

Recommended

The MoneyWeek Podcast with John Mills: why a weak pound is good for the UK
UK Economy

The MoneyWeek Podcast with John Mills: why a weak pound is good for the UK

In a special bonus mini-podcast, Merryn talks to John Mills, founder of consumer goods distributor JML, chair of Vote Leave and one of the Labour Part…
3 Oct 2022
Kwasi Kwarteng U-turns on top tax rate decision
Budget

Kwasi Kwarteng U-turns on top tax rate decision

Kwasi Kwarteng has U-turned on his top tax rate reduction announced in his mini-Budget at the end of September.
3 Oct 2022
The best offers for switching banks – get up to £200 free cash
Personal finance

The best offers for switching banks – get up to £200 free cash

Looking to move bank accounts? You can now bag as much as £200 for switching current accounts
3 Oct 2022
Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?
Mortgages

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?

Increasing numbers of homeowners are paying an early repayment charge to leave their fixed-rate mortgage deal early, and lock in a new deal now. Shoul…
30 Sep 2022

Most Popular

The best British tech stocks from a thriving sector
Share tips

The best British tech stocks from a thriving sector

Move over, Silicon Valley. Over the past two decades the UK has become one of the main global hubs for tech start-ups. Matthew Partridge explains why,…
29 Sep 2022
Share tips of the week – 30 September
Share tips

Share tips of the week – 30 September

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
30 Sep 2022
Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022