Preparing for Japan’s re-opening

Market Development: The Q1 earnings reports of Japanese companies exceeded expectations, but the market still declined, mainly due to profit-taking by global investors. High valuation small caps declined, whilst large caps with relatively low valuations were supported by value investors over the month.

Monthly Fund Commentary
14 Jun 2021

Market Development: The Q1 earnings reports of Japanese companies exceeded expectations, but the market still declined, mainly due to profit-taking by global investors. High valuation small caps declined, whilst large caps with relatively low valuations were supported by value investors over the month.

The Cryptocurrency market declined dramatically in May, impacting investors with exposure to this asset class. Elon Musk’s “flip-flop” idea of using cryptocurrency for their EV purchase, combined with a further tightening of rules surrounding cryptocurrency markets by the Chinese Government, poured cold water onto this soaring asset class. Investors who had concerns over being in such a volatile market and about the risk of a rise in inflation in the US market pulled money from the global market.

In May, we added two new names to the portfolio: Kureha and Hirose Electric, and also added to the existing holdings in Takeuchi Manufacturing and Taiyo Holdings. We slightly decreased exposure to domestic consumption stocks and increased exposure to manufacturing companies that export goods.

Market Outlook

Vaccinations in Japan are gradually progressing, with the number of COVID-19 infected patients declining recently. The Japanese Government has two upcoming challenges: the Olympic Games; and the next general election, scheduled for September this year. PM Suga believes the success of the Tokyo Olympic Games will support the LDP in the election, so they want them to be successful, despite the difficult environment.

The earnings of Japanese companies are expanding although the service sector is lagging compared to the manufacturing sector. This is primarily due to the ongoing semi-shutdown of restaurants, entertainment, hotels and travel businesses in major cities, which will experience continued restrictions until 20th June. That said, the processing of vaccinations and the declining number of patients should make the full re-opening of the Japanese economy possible in the near future. We should prepare for this by carefully watching and forecasting how living and working environments will be affected.

At Rheos Capital Works, we are completely fitted for remote working and can transform our living and working environment to be more flexible, easier and fun than before. We will focus on small growth companies that have also adapted to such changes and transformed during the last year. We will maintain the current portfolio.

Portfolio Development

Asics which manufactures and sells sports shoes in global markets performed well during the month. The company announced good results, increasing investor confidence in the company’s category management, which is based on a regions and product matrix business construction. President Hirota and CFO Hayashi remodelled Asics’ business style in 2016 and it has proved successful.

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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

The views and statements contained herein are those of Rheos Capital Works Inc in their capacity as Investment Adviser to the Fund as of 09/06/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.