Together with Julius Baer, Kazunaga Saso at SuMiTRUST, the Japanese investment house with $609 billion of assets under management, talks with this news service on why he is positive about Japan’s economic outlook and stock market, despite sweeping tariffs levied by the US. They highlight improvements in corporate governance as a positive factor.
The past few weeks have been turbulent times for countries with a
strong export history such as Japan, but there are enough reasons
to think that the Asian country – and the world”s third
largest – can deliver solid economic and stock market gains,
wealth managers say.
Louis Chua, equity research analyst Asia at Julius Baer, thinks
Japan’s reconciliatory approach with the US has allowed it to
secure a good position in the trade negotiations. This month, he
highlighted that the most compelling element of the Japanese
equities’ investment thesis is corporate reform, which is picking
up pace, so he maintains his overweight position in Japanese
equities.
“Overall market valuations are attractive, and our 12-month
target for the Nikkei 225 of 40,000 implies 22 per cent
total returns,” Chua said in a note. A basket of high-quality
Japanese companies is, in his view, a key component of a
globally-diversified equity portfolio.
Even before US President Donald Trump announced his tariffs on 2
April, global equity markets had been under pressure, but
dropped significantly after that date, wiping trillions off
market valuations; the dollar also came under pressure against
major currencies, putting certain nations’ export earnings under
a dark cloud. Since the start of January 2025, the Nikkei
225 Index of major Japanese stocks has been down almost 11
per cent, while the US S&P 500 Index is down 8 per cent. The
MSCI World Index of developed countries’ shares (in US dollars)
is down by 4 per cent.
While the status of US tariffs and trade policy remains in flux,
Julius Baer’s Chua believes that Japan’s reconciliatory approach
has allowed it to secure a solid position in the trade
talks, with the country likely past peak tariff concerns even as
markets remain volatile. Chua also sees potential for
further support measures, with fiscal policy set to be
expansionary with an Upper House election due in July.
“Monetary policy remains significantly accommodative, with
negative real rates, even assuming further rate hikes by the Bank
of Japan (BOJ),” he continued. Chua expects a virtuous
cycle of sustainable inflation, wage and earnings growth, with
two consecutive years of above 5 per cent wage hikes supporting a
positive wage-price interaction, as companies raise prices and
drive an expansion of margins and earnings on operating leverage.
Kazunaga Saso, senior portfolio manager at SuMiTRUST, also
thinks that there will be two more rate hikes this year of
about 1 per cent, which will have a limited impact on stocks, and
will be good for the economy. Nomura Asset Management also thinks
that the
next rate hikes will take place in July 2025 and January
2026.
“In the long term, the most compelling element of the Japanese
equities’ investment thesis is corporate reform,” Chua
continued. Amid record high buy-backs, Chua expects efforts
by companies to drive long-term shareholder returns and value
creation to both pick up in pace and broaden in
scope. “Japanese equities are trading at an attractive level
in absolute terms,” he added.
Saso told this news service that their high-growth,
high-quality Sakigake fund weathered the 2021 value
shift, the 2022 interest rate hikes and now they’ve staged a
comeback, despite not being aligned to the themes of the Japanese
stock market rally.
Valuations
Saso says many stocks are still undervalued and attractive
investment opportunities can be found there. The improvement in
corporate governance has been a positive factor for Japan. Wages,
which have been flat for many years, are improving too –
important for attracting talent. He also cited factors such as
the rebound in tourism in Japan. Saso says the Sakigake fund
is now fully available to UK investors. Previously, it was only
by reverse solicitation. The fund is a UCITS vehicle with assets
under management of £40 million ($53 million) which has the
same strategy as the £1 billion Japanese version.
Saso invests in long-term quality growth names in key areas such
as digitalisation and artificial intelligence. However, he did
adapt to market conditions to a degree by shifting into banks
which were performing well in 2023/2024.
Although US tech stocks suffered a recent setback, Saso 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.
The stocks that he has continued to hold over the past few
years –due to their anticipated medium-term growth –
include semiconductor-related companies such as MARUWA, a
centuries-old specialist ceramics company that 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.
Other holdings include inbound consumption-related companies such
as Isetan Mitsukoshi and MatsukiyoCocokara, a drugstore
company in the beauty and health field which are expected to
benefit from the increase in inbound tourists. 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.
Meanwhile, Saso is underweight in automobiles after Trump slapped
25 per cent tariffs on all automobile imports to the US. Japanese
Prime Minister Shigeru Ishiba said on Monday that he has no plan
to terminate the trade deal struck with the US in 2019 but will
keep voicing his concerns over inconsistency between the deal and
Trump’s latest automobile tariffs.
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 and UK investors through a UCITS
vehicle.
AloJapan.com