Will consumers pay more?

Market Development: In March, the market rebounded under the pressure of possible stagflation in Japan. Strategic Japan Opportunities Fund’s NAV rose 6.3% during the month.

Fund Commentary
12 Apr 2022

Market Development: In March, the market rebounded under the pressure of possible stagflation in Japan. Strategic Japan Opportunities Fund’s NAV rose 6.3% during the month.

Gasoline prices surged due to the prolonged Russian attack on Ukraine, but the Japanese Government took special measures to ease the rising prices in order to calm the dissatisfaction within the domestic economy. Input prices are rising whilst the economy is struggling to expand, primarily on the back of Japanese business behaviour, where companies are hesitant to raise the prices of products and services.

The Tokyo market has rebounded and the Dollar-Yen rate deteriorated since the Fed finished its monetary easing policy which began in 2019. The Yen weakened against the Dollar, reaching over 122 at one point, which boosted exporters’ profitability and share prices, leading to the index gaining overall.

Toshiba’s corporate split idea was denied by shareholders and it triggered investor awareness of corporate governance again. Investors and asset holders may re-think their ESG point of view, with a number of companies announcing share buy-back policies in order to improve their capital efficiency before the forthcoming annual shareholders’ meeting in June.

Both manufacturing and non-manufacturing PMI increased for March, especially non-manufacturing PMI, which recovered significantly, mainly due to the end of the semi-lockdown measures in major cities that were initiated on March 21.

Market Outlook

Investors are wondering when Russia’s attack will end and peace will return to Ukraine. More than 4 million Ukrainians, accounting for about 10% of the population, have been evacuated from the country and some of those have come to Japan.

We believe this is a hegemony war of ideology and market economy. Thirty years after the dissolution of the Soviet Union, there has not been much improvement to Russia’s autocracy; western countries, including some that rely on Russia for energy supplies, have struggled to settle this complex issue.

In addition, we believe that oil prices will not deteriorate as there will be increased demand from a growing global population, and large energy-consuming nations, including Japan, are not yet equipped for renewable or green energy. In this context, we have to improve our productivity and profitability further to compete with rising input costs.

We need more DX strategies and base energy supply systems, including green energy sources and battery storage. Additional solutions include EV and lower energy consumption technology, to help cope with the current environment. We will continue to maintain the current portfolio.

Portfolio Development

During the month, we added Macromill (3978) to the portfolio. Macromill provides marketing research and digital marketing solution services for companies. A major segment of the company provides online marketing research services such as QuickMill, OrderMill, qualitative research and databases, as well as digital marketing solutions by using proprietary automatic internet research systems.

The MetrixLab Group segment provides online marketing research, qualitative research and digital marketing solutions. We believe competition amongst Japanese companies will become more difficult than before due to increased input costs, alongside hesitant corporate managers not wishing to raise prices, as most consumers are unfamiliar with this scenario.

We have lived under a deflation environment for a long time, as such neither the supply nor demand side are familiar with inflation. In this context, Macromill can provide services to the many companies needing to investigate real consumer needs before they begin to raise prices.

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 >

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

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The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 08/04/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.