abrdn Japan 21 December 2022
This is a non-independent marketing communication commissioned by abrdn. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
To achieve long-term capital growth principally through investment in listed Japanese companies which are believed by the Investment Manager to have above-average prospects for growth.
Chern-Yeh Kwok; Flavia Cheong; Hisashi Arakawa;
Association of Investment Companies (AIC) Sector
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
abrdn Japan Investment Trust (LON:AJIT) has a rigorous approach to investing in high-quality growth companies across the market capitalisation spectrum, aiming to deliver sustainable long-term returns. The Japanese stock market has c. 3,800 listed companies and, particularly at the lower-size range, there are many under-researched companies which provide active managers with the opportunities to add alpha. AJIT’s management team, led by Chern-Yeh Kwok, is predominantly based in Tokyo, which makes company meetings and primary research more practical. At the same time, the team is plugged into abrdn’s wider Asia Pacific and Global equities’ teams, giving them insight into how global businesses in the portfolio are performing in different markets and against different competitors.
In the last few years, global stock markets, including those of Japan, have seen a focus on higher-growth companies where ‘quality’ hasn’t always been the most important factor. AJITs focus on quality means that while it has outperformed its benchmark, it has trailed some of its peers with a greater focus on growth (see Performance). Recent market turmoil, in the wake of rising interest rates and inflation, has seen the premia afforded to the highest-growth companies contract as investors reassess their growth potential. Although we are still in the midst of this phase of the market, a return to a more discriminating stock market that places value on quality should be constructive for a quality-investor like AJIT. Every portfolio company is evaluated against strict quality criteria and is subject to peer review amongst the team.
Three years ago, AJIT introduced an enhanced Dividend policy and since then has maintained a dividend of 15p per share, equivalent to a yield of 2.6%, as at the time of writing. This, together with AJIT’s current discount of 14.7%, may make it an interesting option for Japanese equity exposure at a time when Japan could perform well in a changing global environment.
The issue of deglobalisation is on the minds of many fund managers, concerned by the inflationary effects of a global economy that, for practical and political reasons, is retreating from the globalised supply chains that came to dominate the opening decades of the twenty first century. Japan is an interesting case study against this backdrop. Japan’s demographics, with an ageing population, low immigration rate and a tight employment market, has meant that it has for many years been a world leader in automation and robotics, much of which originated in its car industry. In addition, many of Japan’s largest manufacturers are very international, in terms of manufacturing close to their end markets. In our view, this means that Japan has some key skills and attributes that should be very positive in a global economy that will need to find ways to reduce labour costs as it reconfigures manufacturing and services to be either ‘on-shored’ or ‘near-shored’.
Quality growth has been slightly left behind in recent years, as the market has placed more value on high growth. In our view, a higher interest rate and inflationary environment should be supportive for higher-quality companies and AJIT should perform well in this environment.
On top of this, AJIT’s discount, currently 14.7%, is attractive relative to peers and is likely to narrow as the financial year-end approaches, for reasons discussed in the Discount section. AJIT’s enhanced dividend, using a mixture of current earnings and revenue and capital reserves, means that AJIT has a relatively attractive yield of 2.5%, a premium to the average for the AIC Japan peer group.
- Quality growth could outperform in a higher inflation environment
- Deglobalisation could be constructive for Japanese companies
- Relatively high dividend
- Discount could fluctuate according to proximity to discount control mechanism
- Dividend partly funded from revenue and capital reserves
- Japanese equities typically very sensitive to global economic growth