First State Stewart Asia: Watching Brief

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  • 08 mins 41 secs
Japanese equities have had a tough year with the TOPIX index falling by 9% from its January peak. So why should investors view it as an investment opportunity? Sophia Li, Portfolio Manager, First State Stewart Asia and Amaya Assan, Research Manager, Square Mile Research and Consulting, discuss.


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Japanese equities had a tough year, with the topics index falling by nine percent from its January peak. So why should investors view it as an investment opportunity? It's a fairly portfolio manager for first stage. Tasia lead manager on the first date. Japan Equity Funds, Assan research manager, Square Mile Research and Consulting discuss. So first aboard, there's a large number off a high quality companies which benefit from secular growth. Imagine opportunities on the ground, for example, factory automation and the Robotics. Actually, more than fifty percent of the robots in the world are made by Japanese manufacturers. And there's a well established supply chain based in Japan. If you look at some of the companies there, they have close to monopoly global market share in a very, very niche products. Another example is global leading Japanese consumer brands. We know that in China there's a fantastic consumption up grace story. And in the past few years China has already abolished the one child policy. But if you ask the Chinese mothers, some of the most popular consumer brands are come from Japan. For example, faster retailing, which make Unico branded apparel pigeon, which makes baby bottles unit on which make by a bus. So for these companies actually their growth a mania driven by the favorable demographic story in Asia, and they generate more than fifty or even eighty percent of their profits coming from Asia. Even in the domestic investment universe, they're very interesting secular growth opportunities, for example, e commerce. In Japan, the e commerce penetration ratio is Carol. Around five percent in United States or China is more than twenty percent. We're investing a number of leading economists operators which generate sustainable high return, thanks to the limited a competition risk in their respective verticals, Japan has thousands off listed large, medium or smaller size companies in general. Many of these firms are not well covered by Southside industry analysts. These companies, however, include world class businesses with leading technologies, global brand services and products that they sell globally and domestically, and increasingly, many, which trade within the Asian region. So with little Southside coverage for active stock, Because this is a market with plenty of scope to generate returns, our Japan Equity Fund has a good track record of preserving client capital during the down markets. On the generating, long term, absolute return we are benchmark Gnostic. The active share ratio off the fund is more than ninety percent. And if you look at our past the track record, we managed to outperform the benchmark by more than eighty percent of the time during that they'll markets. We believe that investing Japanese companies is not that you called to investing in Japan economy Investors can consider first day Japan fund as a vehicle to gain access to a large number of a globally competitive companies, which have dominant market share in niche industries. And secondly, in masters can gain access to our number off well wrong domestic companies, which have a good track record of gaining market share in stagnant industries and the delivering sustainable growth through economic cycles. This fun looks for companies with high quality management and resilient franchises. So such investments, my offer some defensive characteristics in market downturns. Therefore, this strategy could play an attractive role in once portfolio to get exposure to Japanese equity markets without the volatility off the wider market. Our portfolio is purely constructed based on boarding up stop picks, as a result of which currently we have about fifteen percent exposure to factory automation and the robotic companies. Secondly, we have about ten percent exposure to well managed the leading domestic drug store operators, which we believe is one of the best of health formats for investor to investing. It benefits from aging population, increasing spending on health related products. And thirdly, they're gaining market share from food and dispensing pharmacy industries. And then we investing the leading drug store practice, which have continuously growing their profit based on mergers and acquisitions for Italy. We also investing a number ofthe recruitment and their staffing service companies in Japan. Japan currently has a severe and the structural labor shortage. There's one very interesting statistics to show that by the age of forty eight, Americans changed drop by eleven times. But for Japanese, the only change job for one and a half times. So if they change job for one more time, the market we're almost double Japan is an exciting market. Being historically innovative. It is now leading the charge across many sectors with new technologies, goods and services, for example, manufacturing, automation, robotics, niche electronic components and even naps for clothing brands. They are also companies that are willing to take risks, and so are disrupting traditional business practices. I think the found the candle a row between ten and fifteen percent annualized a return in the next three to five years based our internal price targets of their stocks in a portfolio in terms of risks. One major risk is thie violent secretary ation to mega banks and the deep value cyclical stocks. There will be shot on volatility to our found the performance, but that we believe volatilities is an opportunity, not a curse. Our view is that we will try to avoid catching other waves and adding on to the stocks where in which we have high conviction. Other major risks like I can think of is for X and just concerned about the global traders slow down as a result of the U. S China tariff dispute in terms ofthe oryx globally, masters tend to Japan won young weekends and vice versa. They probably believe that Japan had exported Call me, which we don't think so. First of all, export only accounts for sixteen percent of Japan. GDP, if you look at China, is twenty two percent. Korea Germany, more than forty five percent. With a longer time horizon, the impact from FX will be. I'll wait by the fundamental factors of individual companies. Second, in terms of concern about global trade, a slowdown as a result of the tariff dispute. First of what? We think the impact on Japan's economy is very limited. Japan export to United States is on ly lesson two point five percent of Japan's GDP and the second really, if we look at it, the current account surplus more than ninety percent of that it's actually generated from the dividend income and interest income from the stops. That and the bonds that Japanese companies hold overseas. Our strategy has always been to invest in companies with dominant market share in each industries for these companies, their products off low substitution risk and provide high value to their clients. So as a result, we believe this strategy should be over able to preserve our client capital. There are many different funds with diverse investment approaches and varied wrists which they are taking to achieve their investment objectives. However, in general, returns on these fans will hinge on the returns of the Japanese market and its currency. Japanese equities and the young currency can be volatile. Investments so this strategy might be more suitable for investors with a longer time horizon. Furthermore, if this fun truly defense on the downside in more volatile markets, this could couple with attractive returns over the long term, making an appealing option for investors who are concerned about downside risk. Our Japan equity strategy. You messing a number off cos with strong French heist run by unconventional management in a highly conservative society and have the ability to generate a sustainable growth and the return on equity through economic cycles without the reliance on macro factors. If you look at the past the track record of fund, we managed to perform better than the markets by more than eighty percent time during the dawn markets. Our mission is to presume our client capital in the very long road