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.
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
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.
-
Which investments can I hold in a stocks and shares ISA – and which ones are banned?HMRC has a list stating which investments are allowed in ISAs, but sometimes investors, and even ISA providers, get confused by the rules. Here’s what you need to know when picking your investments.
-
Review: Andronis Minois and Andronis Arcadia – two Greek island idyllsTravel Andronis Minois on Paros and Andronis Arcadia on Santorini are two beautiful, authentic hotels on two different islands in Greece
-
Out of America's shadow: Why Trump's tariff chaos may be good for non-US stocksOpinion Upending global investment and trade could benefit other countries at the expense of the US market, says Cris Sholto Heaton
-
LendInvest: a promising fintech firm going cheapOpinion LendInvest has made some mistakes in the past, but it’s now primed for growth, says Rupert Hargreaves
-
BP's 'long, painful decline' – and why next year could be even tougherOpinion Long-suffering shareholders in oil giant BP have been pushing for change. It won’t come soon enough, says Matthew Lynn
-
Investment trusts tap the profits in exotic and obscure global marketsOpinion Peter Walls, manager of the Unicorn Mastertrust fund, highlights three investment trusts as he shares where he'd put his money
-
The star small and mid-cap stocks income investors have overlookedOpinion Thomas Moore, senior investment director, Aberdeen, highlights three company stocks as he shares where he would put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
-
Chemring Group: an explosive investment opportunity in defenceEuropean states are raising their military spending, and Chemring Group looks well placed to profit
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
