The pandemic continues to pose near-term risks as new variants of the virus and rising infection rates prompt governments to extend restrictions. However, vaccines and continued monetary and fiscal-policy stimulus bode well for global growth and will be supportive of Japanese equities. Several themes present themselves. Clean energy and environmental-efficiency are areas where Japan has some very competitive companies. Covid-19 has also accelerated trends in e-commerce and digitalisation. As profits recover, companies will prioritise those areas.
Above all, Japan continues to offer a wealth of under-researched mid- and small-cap growth companies, where we typically find better business models and returns on equity (a key gauge of profitability), and management has more incentives in terms of shareholder returns. Active managers like myself, based here in Japan, get the opportunity not only to invest in established global leaders but also to unearth less well-known companies, where lower levels of coverage by analysts can often yield great mispriced opportunities.
NOF: delivering drugs and profits
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