Digital transformation and discount retailers beneficial for Japan’s investors
In the midst of the COVID-19-induced chaos, some companies in Japan experienced strong growth thanks digital transformation and the move towards discount retailers which were particularly beneficial for portfolios, according to FSSA Investment Managers.
Digital transformation happened in 2020 when it was given a much-needed boost by the pandemic, even though it was long believed that Japan’s digitalisation efforts would eventually accelerate.
According to the Information-technology Promotion Agency, 40% of Japanese companies managed to establish a digital transformation (DX) project.
“We believe this will benefit the internet services and SaaS companies owned in the FSSA IM Japan strategy, many of which we have owned for some time,” Japan equities portfolio manager, Sophia Li, said.
“Despite Japan boasting one of the largest annual IT expenditures globally, the pace of digital adoption has been slow. There is still a strong attachment to methods from the ‘old days’, with manual processes and offline business models. However, COVID-19 has forced companies to pick up the digital pace.”
Another trend, according to Li, that was accelerated by COVID-19 was the move towards discount retailers, as in Japan “cheap” products used to be viewed with suspicion, but that perception slowly changed as more customers in the middle-income bracket now visit stores like Gyomu Super and Workman, she said.
“Demand for goods and services that stretch consumers’ real disposable income has strengthened significantly. Given the performance of these and other discount retailers in Japan, we believe the discounting trend – particularly with Japan’s sluggish economy and muted wage growth – is here to stay,” she said.
“We do not predict macro events, because our investment approach – as bottom-up stock selectors – seeks to identify companies that are in charge of their own destiny. While Japan consistently defies convention, we select only the companies that can thrive, regardless of the country’s economic challenges.”
Recommended for you
There is one specific risk that is a significantly higher concern for financial services directors compared to companies overall and is impacting their risk appetite, according to the AICD.
Global fund managers are shunning bonds, with the asset class seeing the largest drop in allocations in more than 20 years.
Australian Ethical has seen its funds under management reach $10 billion, driven by organic customer growth and superannuation contributions.
Financial advisers will have access to private equity investments run by WTW for the first time as it launches a pooled fund to provide savers with access to traditionally institutional assets.
