After the recent August market shock, Katsunori Ogawa, chief portfolio manager of SuMi TRUST’s Sakigake High Alpha Strategy, discusses the outlook and investment opportunities in Japan, outlining his top stock picks.
With Japanese stocks recovering significantly since August,
Katsunori Ogawa, chief portfolio manager of SuMi TRUST, a large
Japanese investment house, remains positive about Japan’s
economic outlook and stock market, particularly the semiconductor
industry. He believes that many stocks are still undervalued
and attractive investment opportunities can be found there.
The improvement in corporate governance has been a huge positive
factor for Japan. Wages, which have been flat for many years, are
improving too – important for attracting talent. Ogawa also
cited factors such as the rebound in tourism in Japan. With 31.9
million foreign visitors in 2023 and a goal of 60 million by
2030, Japan”s tourism sector is growing rapidly, boosted by a
favourable exchange rate and rising spending levels.
Ogawa believes that there will be another interest rate hike in
December and that the Bank of Japan will make another two next
year. “We think that the Bank of Japan will make take very
gradual steps, and there will be mild inflation of 2 to 3 per
cent which is still lower than other countries,” he told this
news service in an exclusive interview. Ogawa thinks that the
rate hikes are good for the Japanese economy, signalling the end
of a deflationary era. “Firms with good balance sheets will be
the winners,” he added.
He believes that the Japanese stock market will be
robust, supported by economic growth underpinned by mild
inflation, measures to improve capital efficiency implemented by
the government and the stock exchange, and the launch of the new
NISA [Nippon Individual Savings Account] system.
Semiconductor industry
Although US tech stocks suffered a recent setback, Ogawa is
bullish about Japan’s tech industry. He is positive about Japan’s
semiconductor industry, in particular, saying that positive
government intervention will drive a resurgence in Japan’s
semiconductor sector, bolstered by friendly ties with Taiwan. Key
holdings include companies positioned to benefit from this trend.
Ogawa’s top holding in the Sakigake High Alpha Strategy is
Maruwa, a centuries-old specialist ceramics company that
effectively remoulded its business to produce crucial elements
for semiconductors and circuit boards. He believes that the
growth of electric vehicles (EVs), data centres, and 5G markets
will bolster the company’s profit. Despite the slowdown in China,
the company’s profits are growing, driven by strong demand for
EV-related products. It has also just set up four new factories
in Japan and plans to set up factories for information
technology, semiconductors and EVs.
Another top holding is DISCO, a manufacturer of precision
cutting, grinding and positioning machines used for semiconductor
production equipment. Tokyo Electron, a manufacturer of
semiconductor production systems, is also a top 10 holding. It
has strength in its product line-up which covers the entire
process of manufacturing semiconductors.
Ogawa, who founded the Sakigake High Alpha Strategy in 2003,
invests mainly in mid and large-cap equities with growth
potential which benefit from structural changes in society. The
strategy has outperformed the TOPIX since inception.
Other top 10 holdings include Kawasaki Heavy Industries, a
manufacturer of transport equipment and industrial heavy
machinery using the technology of hydrogen energy.
They also include Matsukiyo Cocokara, a large drugstore
company in the beauty and health field. The company has strengths
in negotiating with manufacturers, product development,
data-driven marketing, store operations, and logistics control.
Profit from the demand for cosmetics and pharmaceuticals, is
driven by the optional use of masks, normalisation of economic
activities, and the recovery in tourism from Asians visiting
Japan. Ogawa expects a continued recovery with tourists from
China also supporting performance.
He also invests in Sumitomo Mitsui Financial Group, the Japanese
mega-bank, which is Japan’s second largest financial group.
The Sakigake High Alpha Strategy, which is available to Japanese
investors, aims to invest in Japanese growth names. The strategy
is also available to European but not UK investors through a
UCITS vehicle. Net of fees, the strategy has outperformed the
TOPIX since inception.
Stefan Sommerville, the investment specialist for Bermuda-based
Orbis Investments, also remains optimistic about Japan’s economic
outlook and investment opportunities in the region. See more
commentary
here.
