Industrials and IT are the top two sectors to back in Japan for the coming year, according to Lion Global’s head of Japanese equities.
‘[We are looking at] globally competitive companies with exposure to emerging market growth and structural themes such as factory automation and consumerism,’ he said.
‘We expect structural growth in this area as wage inflation in emerging countries and the need for efficiency improvements across industries propel the shift towards greater automation.’
The two sectors combined accounted for nearly 38% of his portfolio at the end of June.
Elsewhere, Wee said he also has a preference for medical equipment and consumer brands on the back of increasing wealth in emerging markets.
He said these would drive greater demand for better health monitoring and shift towards high value consumer goods like baby diapers.
Wee said companies involved in these sectors include Asahi Intecc, Sysmex, Omron, Pigeon and Unicharm. Omron and Pigeon rank among the top ten stocks in Wee’s portfolio as well.
In addition, Wee said: ‘[We expect] the shift towards greater electrification and safety systems to drive the growth of auto parts-related companies such as NSK, Nidec and Denso’.
Denso, which was formally owned by Toyota Motors, is also among the top ten stock holdings companies, accounting for 3.1% of his portfolio.
Wee said his fund focused on mid- to small-cap companies to seek growth opportunities. ‘We actively select undervalued companies with catalysts for growth,’ he said.
In the financial sector, he particularly likes the real estate sector, which he said appears ‘too attractively priced’ at the moment relative to other sub-sectors within the financials.
Overall, he sees attractive opportunities in both globally competitive companies and domestic-oriented companies in Japan.
'In globally competitive companies, we are now seeing Japanese companies shift their strategy from defending profitability from the strong yen to taking the offensive to gain share in existing markets or expand into new markets,' said Wee.
'For domestic-oriented companies, there are now opportunities for greater pricing power as the nation shifts from a deflationary to inflationary mindset.'
In the past five years to July 31, the LionGlobal Japan Growth Fund returned 50.15%, while the Topix TR index gained 39.48% in USD terms.