Market Development: The Japanese market gained in September and jumped following Prime Minister Suga’s announcement that he would not run for president in the next LDP election. This resulted in Kishida, the former Foreign Minister of Abe’s cabinet, becoming President of the LDP.
In the Japanese system, the head of the ruling party will become the Prime Minister of Japan, meaning Kishida could be the next Prime Minister of Japan if the current LDP and Komei coalition retains the majority of seats in the House in the general election in late October. Investors are focusing on whether the next cabinet will provide further supplemental financial support or not.
We have sliced and sold a number of stocks during the month, such as reducing Locoguide and SUN Asterisk and purchasing Fuji Electric and adding to Disco and Miura Co.
Kishida, aged 64, who has become the President of the LDP of Japan, will stand in the next general election to be held later this month. We expect Kishida to put significant emphasis on vaccinating the citizens of Japan in order to support the reopening of the Japanese economy.
In October, the government eased the state of emergency in major cities, and now people are able to dine out and consume alcohol until 9:00 pm. Market interest is now focused on which party will win the election, and how the next government will lead Japan’s growth for the next few years under ongoing global uncertainty within a COVID environment.
We believe that the new government will provide a sizeable supplemental budget to support the domestic economy, and may provide a booster vaccination early next year. Supporting those who are experiencing financial difficulty as a result of COVID will likely be the primary target for the new government.
We have recently focused on DX, EV and semiconductors, and will continue these themes for the time being. As the US and China dispute continues, the shortage of semiconductors is likely to continue into 2022, slowing production of electronic gadgets and autos, and inevitably creating further global demand for these products.
In terms of DX, we took profits by selling several related stocks in recent months. DX related stocks have performed well since last year, and we would like to see how these companies will drive further profit growth, as well as how people will adapt and improve their working and living environment within a Coronavirus world. We will continue to maintain the current portfolio.
Otsuka Corporation (4768) is a system integrator that provides IT solutions for domestic companies throughout the nation. System integration includes consulting, system design and development, transport, installation work and network consulting. The company also sells computer peripherals, facsimiles, copy machines and telecommunication equipment.
Working environments are changing dramatically due to COVID-19, and the need for office reform continues to expand giving the potential for Otsuka Corporation’s revenue to increase further. That being said, the salespeople of Otsuka continue to experience difficulties visiting existing and potential clients under the COVID situation, and as such the company may not see an immediate gain. We believe the company will survive the current difficult market conditions and experience strong top-line growth in the future.
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 11/10/2021 and are based on internal research and modelling.