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

How to keep your dividends safe from the taxman
Personal finance

How to keep your dividends safe from the taxman

We look at ways to keep your dividends safe ahead of the decrease in tax allowances.
28 Mar 2023
Shoppers feel the pain as food inflation hits a record
Personal finance

Shoppers feel the pain as food inflation hits a record

Data from the analytics group Kantar showed food inflation hit a fresh peak in March 2023
28 Mar 2023
11 investment trusts for inflationary times
Investments

11 investment trusts for inflationary times

Inflation eats away at the value of your money, but these investment trusts can help you grow your wealth.
28 Mar 2023
Best junior stocks and shares ISA platforms
Isas

Best junior stocks and shares ISA platforms

A junior stocks and shares ISA is a great way to save for your child tax-efficiently. But it can be confusing deciding which investment platform to ch…
28 Mar 2023

Most Popular

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

Ofgem’s price cap is now predicted to fall below £2,000, based on average typical use, from July, for the first time since 2022. We have all the detai…
21 Mar 2023
Government plans could see NS&I boost interest rates
Savings

Government plans could see NS&I boost interest rates

The government-backed bank has a new funding target, which could prompt it to boost the rates on its Premium Bonds, ISAs and bonds.
16 Mar 2023
Where will house prices go in 2023?
House prices

Where will house prices go in 2023?

We explore what could happen to house prices in 2023 as the market continues to slow down.
24 Mar 2023