Market Development: The Japanese market declined in April on the back of the Government announcing fresh lockdowns in major cities and prefectures, such as Tokyo, Osaka, Kyoto and Hyogo towards the end of the month.
Despite the Government requesting large department stores and shops in major cities and towns to close or shorten their operating hours, it has proven difficult to control the COVID situation due to the number of people out in public.
It seems the only solution is to speed up the vaccination progress. In addition, restaurants have been banned from serving alcohol on the theory that alcohol causes an increase in vocal volume, which in turn can increase the spread of COVID, but it was a “better than nothing” idea as the sales in such shops and restaurants are unlikely to reach the levels they would if fully operational.
Leisure and hospitality businesses fared OK during the “Golden Week” holidays as people were reluctant to stay at home. The slow progress of vaccinations in Japan is negatively impacting overall domestic consumption, and we are yet to see any light at the end of the tunnel.
In light of the above, we have reduced our exposure to domestic consumption companies and added export-oriented electronics and machinery companies to the portfolio.
The vaccination process has just begun in Japan, and it is hoped that the benefits will be seen sometime this year. People are waiting patiently for the complete re-opening of the economy, and for the time when they may feel at ease again.
Meanwhile, PM Suga visited the US to strengthen the relationship between the two countries. This is good for Japan and it improves the position of Japan in the Pacific-India region, offering greater protection to the country from unforeseen circumstances.
Vaccinations should end sometime this year. PM Suga will then begin to build a crisis management system for Japan, similar to those already in place in other Asian countries from when they faced SARS and MRSA in the past.
Japanese pharmaceutical companies are in the process of producing vaccines domestically and this will support Japanese citizens in the near future. We need to endure the severe domestic consumption environment for the time being and focus on a brighter future. Earnings of companies are in line with expectations, but this may not be enough to support a rallied market.
The Japanese Government may need to provide further relief to the Japanese people, similar to the American Family Plan, especially for hospitality and restaurant business operators. If this is the case, the Government should be working towards a supplemental budget this year. We will maintain the current portfolio.
Takeuchi Manufacturing (6432) has been added to the portfolio. They manufacture and sell construction machinery such as mini-shovels, crawlers and mixers. Takeuchi derives 45% of its sales from the United States, 19% from Austria, and 8% from China. Other sales are from Germany, India, UK, France and Italy.
As always, we invite investors, or prospective investors in the Strategic Japan Opportunities Fund to discuss the opportunities with the investment team if they would like to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact Adam or visit the Fund Page >
+44 1481 742380
The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 11/05/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.