At AlbaCore, we focus on the long-term. As one of Europe’s leading alternative credit specialists, we invest in private capital solutions, opportunistic and dislocated credit, and structured products. 

Discover more

Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

Discover more

Leader in active quantitative equities across Australian equities, global equities, emerging markets and global small companies.

Backed by a unique blend of research, portfolio construction and risk management, focused on uncovering original insights and translating them into investment strategies that are active and systematic, aiming to generate alpha.

Discover more

Specialists in equity portfolios in Asia Pacific, emerging markets, global and sustainable investment strategies

Discover more
Important Note Click to maximise

This is a financial promotion for The First Sentier Japan Strategy. This information is for professional clients only in the UK and elsewhere where lawful. Investing involves certain risks including:

  • The value of investments and any income from them may go down as well as up and are not guaranteed. Investors may get back sigfsnificantly less than the original amount invested.
  • Currency risk: the Fund invests in assets which are denominated in other currencies; changes in exchange rates will affect the value of the Fund and could create losses. Currency control decisions made by governments could affect the value of the Fund's investments and could cause the Fund to defer or suspend redemptions of its shares. 
  • Single country / specific region risk: investing in a single country or specific region may be riskier than investing in a number of different countries or regions. Investing in a larger number of countries or regions helps spread risk. Smaller companies risk: Investments in smaller companies may be riskier and more difficult to buy and sell than investments in larger companies.

For details of the firms issuing this information and any funds referred to, please see Terms and Conditions and Important Information.  

For a full description of the terms of investment and the risks please see the Prospectus and Key Investor Information Document for each Fund. 

If you are in any doubt as to the suitability of our funds for your investment needs, please seek investment advice.

Part 1: Economic growth is not a requirement for corporate growth

Dispelling the myths and misconceptions of investing in Japan

Despite the perception that there is little or no growth in Japan, our core portfolio holdings in the FSSA Japan Equity Fund have been able to adapt and grow despite economic headwinds, and have delivered sustainable earnings growth and attractive shareholder returns.

In this six-part series, we aim to address some of the most common investor concerns about Japan equities and highlight the opportunities for sustainable growth in this market.

We start with Part 1…


Part 1: Economic growth is not a requirement for corporate growth

Theoretically, a fast-growing economy bodes well for corporate earnings and stock prices, and vice versa. Because of this, investors often cite Japan’s weak economy and deflationary environment as reasons they have been reluctant to invest in Japan. However, the data suggests that these concerns may be unfounded. Although Japan’s nominal GDP has grown by just 4% since the late ‘90s peak, Japan Inc’s corporate profits have grown by 180% over the same period.

With our bottom-up and research-driven investment approach, we have found that Japan contains many “hidden gems” – companies that are able to grow strongly, despite the macro backdrop. How is this possible? Our research indicates that high-quality franchises that are dominant in niche sectors can sustain strong and consistent earnings growth without relying on leverage or macro conditions. Often, these companies incorporate some combination of the following characteristics: innovation, disruption, overseas expansion and a strong focus on return on invested capital.

Even in declining sectors, there are singular companies that have beaten the odds and delivered steady returns for investors. One such example is specialty furniture retailer Nitori, the largest furniture brand in Japan. Weak domestic consumption and deflationary price expectations might reasonably challenge any domestically-focused retailer. However, Nitori has continually innovated – from product design to new store formats – to secure new areas of growth.

Nitori’s vertically-integrated business model means that it manages the entire supply chain, with product sourcing from Southeast Asia, domestic distribution centres that cover every corner of Japan, and direct management of its bricks-and-mortar stores and its e-commerce business. This enables the company to offer high-quality furnishings that are much cheaper than peers and generates higher gross profit margins.

Nitori’s track record speaks for itself and by any standard measure, the company would be considered a remarkable success story. Book value and dividends per share have grown by more than 20x over the past two decades, while sales and profits have grown for 32 consecutive years – despite no growth in the furniture and home furnishings market in Japan. Long-term shareholders have been rewarded handsomely.

Fast Retailing is another example of a Japanese company that has delivered excellent compounded growth for investors. Despite Japan’s weak economy, Fast Retailing has delivered more than 20% compound annual profit growth over the past 20 years. The company behind UNIQLO, the casual-wear brand offering functional apparel and basic wardrobe staples, has turned deflation – a significant headwind for the retail industry – into a tailwind.

Fast Retailing provides high quality and functional yet low-cost unisex clothes, catering to all genders and age groups. Though its designs are simple and timeless, UNIQLO brings continual innovation to its product offering, making incremental improvements over time.

The company’s ethos is based on the guiding principles of its founder and president, Mr Tadashi Yanai, who believes that “God is in the details”. This reflects the Japanese conviction that skillful execution – with a sharp focus on perfecting the small things – should eventually accumulate into a leading competitive advantage over time.

As Akio Nitori, founder and chairman of Nitori, reportedly said, “Economic growth is never a part of our growth assumptions.” This supports our view that there are no sunset companies, only sunset industries. We believe that successful investing in Japan is about seeking out these “hidden gems” in a large and deep universe, rather than simply buying the index. As a highly under-researched market, we believe that Japan offers the perfect opportunity for bottom-up active investors to generate alpha.

We will continue to dispel some of the most common investor concerns through this weekly series. 

Important Information

This document has been prepared for informational purposes only and is only intended to provide a summary of the subject matter covered. It does not purport to be comprehensive. The views expressed are the views of the writer at the time of issue and may change over time. It does not constitute investment advice and/or a recommendation and should not be used as the basis of any investment decision. This document is not an offer document and does not constitute an offer or invitation or investment recommendation to distribute or purchase securities, shares, units or other interests or to enter into an investment agreement. No person should rely on the content and/or act on the basis of any material contained in this document.

This document is confidential and must not be copied, reproduced, circulated or transmitted, in whole or in part, and in any form or by any means without our prior written consent. The information contained within this document has been obtained from sources that we believe to be reliable and accurate at the time of issue but no representation or warranty, express or implied, is made as to the fairness, accuracy, or completeness of the information. We do not accept any liability whatsoever for any loss arising directly or indirectly from any use of this information.

References to “we” or “us” are references to First Sentier Investors.

In the UK, issued by First Sentier Investors (UK) Funds Limited which is authorised and regulated by the Financial Conduct Authority (registration number 143359). Registered office Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB number 2294743. Outside the UK, issued by First Sentier Investors International IM Limited which is authorised and regulated in the UK by the Financial Conduct Authority (registered number 122512). Registered office: 23 St. Andrew Square, Edinburgh, EH2 1BB number SCO79063.

Certain funds referred to in this document are identified as sub-funds of First Sentier Investors ICVC, an open ended investment company registered in England and Wales (“OEIC”) or of First Sentier Investors Global Umbrella Fund plc, an umbrella investment company registered in Ireland (“VCC”). Further information is contained in the Prospectus and Key Investor Information Documents of the OEIC and VCC which are available free of charge by writing to: Client Services, First Sentier Investors (UK) Funds Limited, Finsbury Circus House, 15 Finsbury Circus, London, EC2M 7EB or by telephoning 0800 587 4141 between 9am and 5pm Monday to Friday or by visiting Telephone calls may be recorded. The distribution or purchase of shares in the funds, or entering into an investment agreement with First Sentier Investors may be restricted in certain jurisdictions.

Representative and Paying Agent in Switzerland: The representative and paying agent in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. Place where the relevant documentation may be obtained: The prospectus, key investor information documents (KIIDs), the instrument of incorporation as well as the annual and semi-annual reports may be obtained free of charge from the representative in Switzerland.

First Sentier Investors entities referred to in this document are part of First Sentier Investors a member of MUFG, a global financial group. First Sentier Investors includes a number of entities in different jurisdictions. MUFG and its subsidiaries do not guarantee the performance of any investment or entity referred to in this document or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk including loss of income and capital invested.

Copyright © (2020) First Sentier Investors

All rights reserved.