Japan Equities
December 2024
- A significant challenge is distinguishing high-quality companies with robust long-term fundamentals from those benefiting from short-term tailwinds
- Japan has many companies with unique products, strong global market positions and innovative business models that could thrive over the next decade
- The key will be to identify companies that are resilient in today’s volatile conditions but also well-equipped to capitalise on long-term growth trends
1. What do you think could be the biggest challenge or opportunity for clients in 2025?
In 2025, a significant challenge for clients investing in Japanese equities could be distinguishing high-quality companies with robust long-term fundamentals from those simply benefiting from short-term macro tailwinds. Recently, the Japanese market has been shaped heavily by external factors, such as a weak yen, shifts in US interest rates and global economic conditions, driving more of a top-down approach in investor sentiment. This environment can obscure individual companies' intrinsic strengths, making it harder for clients to gauge which stocks offer real, sustainable value.
The "America First" policy is expected to place various political and economic pressures on Japan. Historically, however, Japan has shown resilience and the ability to overcome external pressures. A prime example is the automotive industry, which has successfully weathered past trade tensions. With the advent of the Trump administration, macroeconomic uncertainties have increased. However, it is precisely in such situations that resilient companies emerge, and investment opportunities arise.
2. What do you see as the one major investment opportunity for you in 2025, and how can you capitalise on it?
The opportunity lies in taking a bottom-up approach that emphasises quality and a company's positioning for future growth. Despite the macro environment, Japan has many companies with unique products, strong global market positions and innovative business models that could thrive over the next decade. These companies might be underappreciated right now, as the market fixates on more immediate external factors.
For clients, the key in 2025 will be to identify companies that are not only resilient in today’s volatile conditions but also well-equipped to capitalise on long-term growth trends. Those with distinct products, technological advancements or global expansion strategies may offer compelling value that is not fully reflected in their current valuations.
Japan is working to further cultivate its semiconductor industry as a national strategy in line with "America First". In particular, the semiconductor equipment industry, which already has a strong global presence, is seen as having significant potential for structural growth. Companies in this space, with robust R&D and export capabilities, could offer significant opportunities for forward-looking investors.
3. What is the biggest risk to your asset class next year, and how can you mitigate that risk, or even turn it into an advantage?
The main risks in financial markets are vaguely understood. Key issues include the possibility of higher US import tariffs, deportation policies and tax changes. As the legislation unfolds, we should gain more insight into how it could affect inflation, debt, trade and global growth. The situation is complex, with interrelated factors that could create unexpected challenges or opportunities.
Rapid negative policy changes in the US could lead investors to demand higher yields on US debt, raising interest rates and strengthening the dollar, which could prompt other countries to respond. This would likely affect various asset classes, including Japanese equities, as higher US yields could attract capital away from foreign markets.
If implemented, stricter deportation policies could limit the US workforce, potentially driving up wages due to a reduced labour supply. This shift may benefit our portfolio companies positioned in sectors like HR technology, factory automation and robotics. As corporations face higher labour costs they will likely seek solutions to enhance efficiency and mitigate wage pressures, spurring demand for automation technologies and HR services that help attract talent.
Ernst Glanzmann co-manages Japanese Equity strategies at GAM Investments.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio nor represent any recommendations by the portfolio managers nor a guarantee that objectives will be realized.
This material contains forward-looking statements relating to the objectives, opportunities, and the future performance of the U.S. market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.