JPMAM expecting positive returns from Japan
Despite Japan's Topix index reaching its lowest point for 28 years last week, Japan remains an exciting Far Eastern investment opportunity with some leading companies in areas such as factory automation, according to Nicholas Weindling, manager of the JPMorgan Japanese Investment Trust.
In his latest market outlook for the region, Weindling said: "Over the next year profit momentum should be relatively good as one-time factors such as the March 2011 earthquake and Thai floods of last autumn drop out. Japan recovered strongly after the earthquake, and the country is well positioned to take advantage of significant Asian and Pacific trading potential and benefits from escalating Chinese and other emerging market demand. While it is still a challenging market, long-term performance in Japan remains on an improving trend.
"Recently we have seen elements of a rediscovered confidence in Japan, and although there are many macro-economic headwinds, we are positive on the outlook, with company valuations remaining compelling, especially while the market is still trading at the low end of historical ranges. We have also seen notable improvements in corporate governance, dramatically higher exposure to growing Asian markets and a more aggressive pursuit of profit than has been the case in the past. Through continued focus on these beneficiaries of powerful secular trends, at a cheap valuation, we believe that the outlook for many holdings remains attractive."
Weindling continued: "Within the JPMorgan Japanese Investment Trust, we have maintained our bias towards high quality companies with leading market shares, strong balance sheets and improving shareholder returns. The reason for this is we still expect global growth to be subdued for a protracted period and that only the strongest companies can succeed in this challenging environment. Additionally, we believe that Japan, by geographic chance, is fortunate to be located in the rapidly growing Asian region, and as such, in export sectors we hold stocks that will benefit from the growth of emerging market economies: companies such as Honda Motor, which has the number one position in motorbike markets including Indonesia and Brazil."
A further beneficiary of regional trends can be found in the area of factory automation. With upward pressure on wages in China, manufacturers may choose to invest in technology in order to reduce the impact of labour costs on their business. Japan is at the forefront of factory automation and JPMorgan Japanese Investment Trust is playing this theme through high exposure to companies such as Fanuc, Mitsubishi Electric, Keyence and THK.
"We also hold a range of domestic stocks that benefit from structural trends in Japan," said Weindling. "One such trend is the rapidly ageing population and an example of our exposure in this area is Message, a recent new purchase for the Company and an operator of sheltered housing. We are also finding attractive ideas in the retail sector, such as Rakuten, the number one e-commerce site in Japan."
Weindling concluded "Our investment approach for the JPMorgan Japanese Investment Trust focuses on first-hand company research and analysis, with over 2,000 company visits each year, and the trust benefits from a broad exposure to around 70 Japanese companies. Additionally, our presence on the ground in Tokyo is a strong competitive advantage in identifying long-term country, sector and stock specific themes."