At a glance
Fundamental backdrop remains solid – many companies are performing well and first quarter earnings were healthy. Shareholder interests remain to the fore with buybacks tripled year-on-year in April. Merger and acquisition activity has been widespread.
Focusing our stock research on three areas – against a volatile backdrop we have been adding to resilient domestic businesses and long-term winners (especially in automation and capex). We have been avoiding expensive names and supply chain/tariff risks.
Japan’s transformation is ongoing – structural drivers remain intact and valuations look more attractive versus historic levels and the global average. Additionally, we believe that Japan is well placed to negotiate tariff-related challenges.
Japan – market update
Year to date we’ve seen significant volatility in equity markets globally – with Japan no different. However, Japan’s fundamental backdrop remains solid – first quarter earnings were healthy, share buybacks tripled year-on-year in April and merger and acquisition activity was widespread. And interestingly, we’ve already seen the broader TOPIX recover and even surpass the level prior to Trump’s ‘Liberation Day’ on 2nd April. Given the market has been broadly flat year to date with no fundamental issues – we believe this is a great time to take advantage of the recent softness and buy into Japan’s long-term story.
Focusing out stock research on three areas
Against the backdrop of recent volatility – we’ve been upgrading the quality of our portfolios and capitalising on share price dislocations. We’ve been focusing our stock research around three areas:
- Resilient businesses – domestic companies that are consistent and stable cash flow generators.
- Long term winners – companies that may face challenges in the near term, but we see strong long-term potential – particularly in areas such as automation and capital expenditure.
- And finally impaired companies – we’re steering away from expensive stocks or companies with supply chains exposed to high tariffs.
Overall, we remain committed to our investment process as we always do in these environments – focusing on acquiring high-quality companies at attractive prices to preserve the value of clients assets.
Japan’s transformation is ongoing and valuations look attractive
As we move through 2025, we expect Japanese equities to have strong structural support from:
- Reflation – which continues to support a positive economic cycle
- Corporate governance – encouraging better capital discipline
- And a pick-up in M&A activity – creating further value for investors
We do remain cognisant of a slowdown in global growth which remains a key risk to Japan, however recent softness has resulted in valuations looking more attractive – specifically on a price-to-book basis. In terms of geopolitics, US tariff negotiations are underway, and we expect constructive discussions going forward given the negotiation tools at Japan’s disposal.
Most importantly the long-term story remains intact: corporate Japan has transformed from the market-share-chasing, low-margin, high-capex model of the 80s to one with a focus on returns and capital efficiency – which places Japan in a strong position to enjoy sustained economic momentum for the next decade.
