Market Development: Japanese markets climbed at the beginning of February but contracted in the latter part of the month due to the US Treasury yield, which rose sharply. The market was well supported by tech companies, but they sold off towards the end of the month.
Investors who had cautious views towards equity markets, due to the sharply rising US Treasuries, reduced their equity risk over the month by selling tech stocks, mainly the performers. In addition to some minor transactions during February, we added Harmonic Drive Systems to the portfolio, which is one of the major part suppliers to Auto companies.
The market, which was shaken temporarily due to the fast-rising bond yield in the US, is calming down in March. There should be a valuation check of the fast-rising equity markets. We believe the earnings of domestic companies will be better than expected, but some sectors, such as Airlines and Restaurant chains will continue to be challenged.
The Japanese lockdown which began on 7th January will be maintained for the time being, and with the exception of restaurant owners, the public agrees with this position. In the meantime, vaccinations have finally started in Japan and will gradually expand. It may take some time to obtain herd immunity, but we believe it will happen sometime this year.
The Japanese government have adopted a cautious stance to ease the current lockdown, and due to the forthcoming elections scheduled to take place in Autumn 2021, PM Suga cannot afford to make any wrong decisions. We will maintain the current portfolio.
Harmonic Drive Systems (HDS) is a manufacturer and seller of traction control systems, such as speed reducers, which is used in industrial robots; Semiconductor Manufacturing Equipment (SME) and vehicles. NIDEC is their largest competitor, but there is substantial demand for traction control systems, mainly from SME and Auto, particularly Electric Vehicles (EV). HDS makes actuators that convert electrical signals to a physical effect, and they are used predominantly in EVs.
Demand for EVs has increased rapidly since President Biden announced that they were aiming to achieve zero emissions or a carbon-neutral environment in the near future. We believe the demand for parts that are made by both HDS and NIDEC will rise further, and these companies will continue to produce decent profits for the next few years.
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 10/03/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.