Japan is more than Toyota

To understand the Japanese economy, a portfolio manager at wealth manager Nomura recommends taking a look at the second row. The good share prices alone are not a benchmark.

Detached from the economic situation: The Nikkei index is displayed on the Tokyo Stock Exchange

AIn Japan, too, stocks are currently in demand. The well-known Nikkei index of defaults had attracted attention some time ago when it surpassed its old high from the early 1990s. The broad market, which the Topix index reflects with its around 1700 values, took a little longer and only climbed to its highest level since 1991 in mid-February. At the same time, the Nikkei index exceeded the mark for the first time since 1990 30,000 points. As it were shocked by the rapid rise, both indices have fallen a little since then.

Andy McCagg, portfolio manager at asset manager Nomura, recommends not looking too much at the indices – at least not at the defaults. “Financial stocks and the automotive industry dominate here, which distorts the picture a bit,” says McCagg. It is true that the Japanese stock market is in seldom good shape.

“Don’t confuse the Japanese economy with the stock market. Japan is not showing much growth, but forecast corporate earnings have reached historic highs. ”He expects a recovery from the pandemic-induced slump of 40 percent this year. For a long time, there was no strong correlation between equity and corporate earnings in the Japanese market. That has changed massively with the new corporate governance guidelines. That is also the reason why the indices broke through the “glass ceiling”.

McCagg ultimately sees the real opportunities in old strengths. For example, when it comes to the trend towards electric cars, one should look at the manufacturers of electrical components. Without this, nothing would work, and so be it with the fast 5G cellular standard or the Internet of Things. “Whether automation technology, robotics, semiconductor equipment or energy-saving technology – Japanese companies make an important contribution here behind the scenes,” McCagg is convinced and gives examples: the manufacturer of cables and wires SWCC, for example, Disco, which builds precision machines, or the valve manufacturer SMC .

“Germany and Japan have not lost their industrial leadership,” says McCagg. “Covid-19 has accelerated automation. This means that we can continue to expect stable earnings in these industries. ”The sustainability trend is also having a positive effect. When it comes to gas turbines, Mitsubishi still delivers the most energy-efficient machines. The aging of the population also offers opportunities, for example in the form of the M3 doctors’ platform or Nihon M&A, which are drafting plans for corporate succession.

Overlooked potential

“Necessity makes you inventive,” says McCagg. Many Japanese companies would be overlooked because those with more media presence would always attract the attention. The market is currently a little overheated. McCagg therefore does not want his outlook to be understood in terms of the twelve-month perspective, although the recovery still has potential for certain industries. “Rather, one should keep an eye on two to three years, when Covid-19 is hopefully behind us and the profits have returned to trend growth.”

And then McCagg adds something that may speak to some Japanese from the soul. “Even if Covid-19 came at the wrong time and there are still many challenges to be overcome, our country is in a much better position than it was a decade ago. After 20 years of deflation, small inflation rates are a success. “