Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about investing in Japan with Jakob Greisen, portfolio manager with C Worldwide Asset Management. We talked about demographic challenges, headwinds and tailwinds, and names he likes. And we started by asking about the current state of the Japanese economy.

Jakob Greisen (JG): The Japanese consumer has been hurt severely by rising prices, especially on food and energy. So, what the Japanese economy needs is that wages actually can follow the recent rise in inflation. Japan is a very open economy with a lot of international companies, and the global economy is opening, Japan is opening, companies are feeling better since restaurants are open again. There are people are in the streets, and a sense of the Japanese being able to spend again. What the Japanese economy needs is more tourists coming back to Japan. T     he Japanese economy has been missing them over the last couple of years.

Demographic challenges

JG: In Japan, there is an issue with the demography, since people are getting older and the population is falling. For companies exposed to the export market, that is not that important. But domestic Japan is challenged by the demographic development that will be happening in the coming years. Actually, the demographic situation in Japan is worsening. Under Covid there were historically low number of babies born. So, it is something you need to be aware of as an investor. And Japan has not allowed too much immigration. So, the falling population will be ours for the next most likely 15, 20 years. Japan has a choice to either allow more immigration or accept lower growth.

Fighting deflation

JG: In Japan, we have seen a starting of inflation. It has been much lower than in Europe and in the U.S., but lately inflation has picked up, and that is mainly due to rising food and energy prices. This has resulted in wage pressure now, because the labour market is tight. So, they are expecting around 5% wage growth. And this will support the domestic Japanese economy, because their cost of living has been hurt by the rising inflation. I visited Japan in November, and several companies, they were reluctant or talked about the difficulty of raising prices because they knew it would be difficult for their customers to pass on the cost. So, that has been a cultural issue in Japan. But I think the inflation currently is too high to ignore.

Japan’s strengths and names he likes.

JG: At C Worldwide we use themes and trends as our window into stock picking and we have identified the digital society as very, very important in the coming 5 to 10 years. And this is an area where the Japanese are in the forefront. They have always been very tech savvy, and very strong within automation and digitalization. And we have found several companies in Japan that are leaders in these areas. Sony has a unique combination of motion pictures, music and games, and the ability to have figures from games being part of movies, and having music within movies and games. So, this interconnection between the assets of Sony could be very, very interesting. And they’re primed for what has been named the metaverse. Also, within advanced manufacturing, we have companies like Keyance where they are optimizing and automating processes within companies. That is a unique company within automation. And a company like Hoya, they are a market leader in semiconductor production. They supply what’s called a mass blank. It is basically a very, very fine piece of glass that is used within the semiconductor production. And they are the unique leader with 100 per cent market share. So, as a global investor, we don’t look for companies because they are in Japan. We look for the uniqueness of the company.

And, finally, what’s the bottom line on the current investment opportunities in Japan?

JG: We’re looking into most likely an economy that is slowing. In a slowing economic growth environment, companies that can grow will become even more valuable. We are looking for companies that are supported by a trend or a theme that we think is much stronger than the current economic environment.

Well, those are today’s Soundbites, brought you by Investment Executive and powered by Canada Life. Our thanks again to Jakob Greisen of C Worldwide Asset Management. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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