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.
-
What does Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
-
Will China thrive during the Year of the Snake - or will Trump’s tariffs bite?As the Chinese lunar new year begins, investors will be wondering whether allocating to the world’s second-largest economy will “rattle” up some big returns, or whether Trump’s tariffs will take a “venomous bite” out of investment performance
-
How to find quality and profitability in financial companiesOpinion Julian Cane, manager of the CT UK Capital & Income Trust, picks three financial companies that drive cash flow, dividends and asset value
-
Luxury stocks rally after Richemont sales boom – is there hope for the sector?Cartier owner Richemont’s robust results have boosted sentiment about luxury stocks – but are investors getting carried away?
-
Transformed companies displaying momentum and top-quality growthAlex Savvides, manager of Jupiter UK Dynamic Equity Fund, highlights three companies as he tells us where he'd put his money
-
Should you add Straumann Holding to your portfolio?Straumann Holding is a global leader in the premium dental-care market
-
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
-
How to find top-quality companies with sustainable and growing dividendsIan Mortimer, portfolio manager of Guinness Global Equity Income Fund, shares where he would put his money for sustainable and growing dividends
-
Why Wise could be worth a lot more than its share price impliesForeign-exchange transfer service Wise has the potential to become the Amazon of its sector – here's why you should consider buying this stock now
-
Can The Gym Group pump up your portfolio?Gym Group was one of the best UK small-cap stocks in 2024 and will beef up your profits this New Year
