Amid ongoing market volatility caused by Covid-19, looking beyond the immediate economic and political uncertainties can be challenging. Nevertheless, the fundamental long-term outlook for Japanese smaller companies remains positive and we see no shortage of exciting investment opportunities.
Quality companies boasting strong balance sheets and a positive long-term growth outlook have proven to be resilient through periods of heightened volatility, leaving them well positioned to thrive in the current market environment.
Many of these companies tap into exciting structural trends such as automation. And in Japan, in sharp contrast to other developed economies, it is the smaller, more entrepreneurial companies that are at the forefront of the trend towards digitalisation and broader IT innovation.
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
Cashing in on digitised business cards
While Japan is an advanced industrial economy, certain areas such as financial services and payments lag other markets in terms of technological sophistication. Japanese manufacturing, however, is world- class and the country is a leading supplier of factory automation equipment and electronics parts. So companies that specialise in niche technology products driving global innovation look appealing.
One such firm is Sansan (Tokyo: 4443), a software company that provides a cloud-based, multi-platform contact management tool for corporate customers in Japan. Its product offering is centred around digitised business cards, which can be simply scanned to build a database designed to enhance staff productivity in sales, marketing and client service activities. The business occupies 83% of market share in Japanese business card management market. With the ongoing pandemic more people will want to shift to contactless ways of exchanging information, so we remain upbeat on the long-term growth prospects of the company.
A winner in video gaming software
Revenues in the video gaming sector are projected to reach US$12.2bn in Japan this year. Enter Capcom (Tokyo: 9697), which develops and publishes video game software, including bestsellers such as Street Fighter, Monster Hunter, and Resident Evil (Biohazard).
Over the years, the game software business has become more robust, especially for those providers with strong intellectual property protection. This is because of the rising penetration of digital downloads, which has increased from 6% of sales in 2012 to around 77% now.
Bringing green boilers to China
Despite the shaky economic backdrop, we continue to see attractive opportunities in industrials. Miura (Tokyo: 6005) is Japan’s leading boiler manufacturer, with environmentally friendly credentials and global expansion plans.
The need to reduce carbon dioxide emissions is a big topic across the global economy and Miura’s ‘on-demand steam solution’ boilers are more environmentally friendly than traditional coal-fired boilers. We believe the company is well positioned to achieve long-term growth by selling its boiler technologies across China (where the boiler market is six times larger than Japan’s and dominated by coal-fired products) and other emerging countries.
-
Rightmove: UK asking prices drop as market adjusts to higher stamp duty costsSellers are coming to market with lower asking prices to attract buyers amid a glut of supply
-
8 of the best houses for sale with outdoor swimming poolsThe best houses for sale with outdoor swimming pools – from a family house in Wimbledon Village, London, to a 1640s mansion in Derbyshire with a heated swimming pool in the grounds
-
Infrastructure investing: a haven of stable growth amid market turmoilFrom booming construction in emerging markets to digital and green transitions, the infrastructure sector offers security, returns and long-term opportunities
-
Resilient and profitable performers will excel in the era of deglobalisationOpinion James Harries, co-manager, STS Global Income & Growth Trust, selects his favourite stocks as he shares where he'd put his money
-
The costly myth of “sell in May”Opinion May 2025's strong returns for US stocks have once again shown that putting too much weight on seasonal patterns will only make investors poorer, says Max King
-
Vietnam: a high-growth market going cheapOpinion The threat of tariffs has shaken Vietnamese stocks, but long-term prospects remain solid, says Max King
-
Who’s driving Tesla?As Elon Musk steps back from government with his eyes on the stars, investors ask if he’s still behind the wheel at his electric-car maker.
-
Growth trends such as low-carbon grids and AI boost key infrastructure — how to investOpinion Richard Sem, partner, head of Europe, and portfolio manager at Pantheon Infrastructure, highlights three favourites as he shares where he'd put his money
-
Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
