Japan has always been a corporate, not an economic, revival story. The market’s recent rally indicates investors’ growing recognition of the positive changes from ongoing corporate reforms. The good news is that profit margins continue to improve and the long-term upward trajectory for earnings remains intact.
Yet the market still trades at very attractive valuations versus global peers which suggests more upside potential for patient investors. Furthermore, over the longer term, Japanese companies are at the gateway of Asia (ex-China), where they can both facilitate and partake in Asia’s growth story.
Reasons to invest in Japan
Corporate reforms are driving profits
Profitability has generally improved on a trend basis; even during the height of the pandemic in 2020, the operating profit margins only fell to the peak level of the previous cycle. This was achieved by Japanese companies managing their capacity and cost base well.
Japan is cheap compared to global peers
Despite resilient earnings and improved companies’ fundamentals, the market did not re-rate and is still valued much lower than other major markets. Lower starting valuations are supportive of likely future outperformance for the market.
More Japanese companies are cash rich
Long-term restructuring efforts have included deleveraging of balance sheets, which has led to high levels of cash and offered many companies a level of flexibility in funding their ongoing operations.
Source: Profit Margin % of sales from Refinitiv Datastream MOF. For illustration purposes only. The indices described are unmanaged and not available for direct investment. Latest data available as 31 March 2023. Current Profits of all Japanese Incorporated Enterprises Industries (Except Finance and Insurance) / Sales, in Japanese Yen.
Source: “Cash rich” companies based on Japan (Topix), US and Europe (MSCI indices) from Nomura, as at 3 March 2023. Companies ratio is the number of positive net cash companies divided by the number of index composite companies.
Source: Eastspring Investments, IBES MSCI Indices, Refinitiv Datastream, as at 31 March 2023. Past performance is not an indication of the future or likely performance. For illustration purposes only. The indices described are unmanaged and not available for direct investment. Indices used: MSCI Japan Index, MSCI Europe Index, MSCI AC Asia Pacific ex-Japan, MSCI EM Latin America Index, MSCI AC World Index, MSCI USA Index Projections, forecasts, opinions on the economy, securities markets or the economic trends of the markets are based upon Information and sources believed to be reliable at time of publication and subject to change without notice.
in rising opportunities in Japan
At Eastspring Investments, our focus remains on identifying the many mispriced Japanese companies with good quality income streams that are yet to be recognised by the market. We expect corporate reforms and structural changes have another five to ten years to play out. Investors who are keen to reap long-terms gains from this market may consider a strategic allocation to Japan equities in their portfolios for these reasons.
Eastspring Investments Japan Dynamic MY Fund
The Fund is an open ended wholesale fund that aims to generate long-term capital appreciation by investing in the Eastspring Investments – Japan Dynamic Fund (“Target Fund”), which invests primarily* in securities of companies in Japan.*At least 66% of the Target Fund's net asset value ("NAV").
A high conviction and unconstrained strategy The Target Fund holds a portfolio that is unconstrained by market cap or benchmark or market's thematic preferences. The portfolio contains 30-50 of our best idea stocks that are undervalued according to their fundamentals or whose prices reflect a significant overreaction by the market.
Differentiated valuation approach The Target Fund’s value differentiator lies in a detailed analysis that looks for the longer drivers of a company’s sustainable earnings using a consistent valuation framework. This approach identifies “high impact valuation outliers” and is durable over time and market cycles.
Proven track record The Target Fund is managed by a highly experienced team with a track record of over 16 years of navigating Japan’s equity universe. They are also one of the very few true-to-label-based managers of Japan equity.
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This advertisement is prepared for information only and may not be published, circulated, reproduced, or distributed in whole or part, whether directly or indirectly, to any other person without the prior written
consent of Eastspring Investments Berhad. This advertisement has not been reviewed by the Securities Commission Malaysia (“SC”).
Investors are advised to read and understand the contents of the Eastspring Investments Japan Dynamic MY Fund ("Fund") Replacement Information Memorandum dated 6 March 2020, the Fund First Supplementary Information Memorandum dated 2 February 2021, the Fund Second Supplementary Information Memorandum dated 1 December 2023 (collectively, the “Info Memos”) and the Fund's Product Highlights Sheet (“PHS”) before investing. The Info Memos and PHS are available at offices of Eastspring Investments Berhad or its authorised distributors and investors have the right to request for a copy of the Info Memos and PHS.The Info Memos have been deposited with the SC who takes no responsibility for its contents. The lodgement of Info Memos with the SC does not amount
to nor indicate that the SC has recommended or endorsed the product. Units will only be issued upon receipt of the application form. Past performance of the Fund is not an indication of the Fund’s future
performance. Unit prices and distribution payable, if any, may go down as well as up. Where a unit split/distribution is declared, investors are advised that following the issue of additional units/distribution,
the Net Asset Value (“NAV”) per unit will be reduced from pre-unit split NAV/cum-distribution NAV to post-unit split NAV/ex-distribution NAV. Where a unit split is declared, investors are advised
that the value of their investment in Malaysian Ringgit will remain unchanged after the issue of the additional units.
Investments in the Fund are exposed to fund management of the Target Fund risk, country risk and currency risk. Investors are advised to consider these risks and other general risks as elaborated
in the Info Memos as well as fees, charges and expenses involved before investing. Investors may also wish to seek advice from a professional adviser before making a commitment to invest in units of any of our
funds.
Eastspring Investments is an ultimately wholly owned subsidiary of Prudential plc. Prudential plc, is incorporated and registered in England and Wales. Registered office: 1 Angel Court, London EC2R
7AG. Registered number 1397169. Prudential plc is a holding company, some of whose subsidiaries are authorized and regulated, as applicable, by the Hong Kong Insurance Authority and other regulatory authorities.
Prudential plc is not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited,
a subsidiary of M&G plc. A company incorporated in the United Kingdom.
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