It was one of the most positive months in recent years in terms of relative performance, thanks to the sense of turning point that was created in the Japanese market after the distortion caused by the so-called “Value” in the 2021-2023 period. This was underlined by Richard Kaye, Portfolio Manager of Comgest’s Comgest Growth Japan fund.
Japan, the rally continues
Fast Retailing, the parent company of Uniqlo, once again reported impeccable financial results, thanks to the expansion of its flagship stores into new urban markets in the United States, Europe and China – in the latter case despite an uncertain economic environment – all of which supported growth. Semiconductors – in several indispensable niches of the global supply chain – have performed strongly in terms of both share price and earnings. Disco, active in the semiconductor wafer cutting sector, maintained double-digit growth in the value of shipments compared to the previous year. The broader context remains equally favorable, as confirmed by the growth in demand and capacity observed in recent announcements from Intel and TSMC.
Tech and semiconductors drive the market
NEC had been seen as a victim of AI-driven disintermediation in its software business. The stock has recovered and the latest publication of financial results shows an unchanged growth picture for all activities, both for the financial year just concluded and for the current one.
The Nikkei index, having only recently recovered from its “lost 30 years,” as the Japanese call them, continued to reach ever higher record levels, surpassing 60,000 on April 27. It is currently supported largely by Fast Retailing and technology stocks and we believe the investment case for both remains strong, as discussed above.
Comgest’s view
The crisis in the Middle East weighs on Japan – concludes the expert – to the extent that its trading partners, such as Korea or Taiwan, have fewer energy resources; however, as elsewhere, this has not resulted in a sharp rise in inflation or a rise in commodity-related stocks – at least not yet – certainly compared to the start of the war in Ukraine. Rather, stock prices of tech companies appear to have benefited from fears of a shortage, which has compounded a picture of pre-existing strong demand, not only from data centers but also for replacement consumer electronics products. We believe that exposure to more defensive and stable domestic companies in the portfolio can offset this exposure to the technology sector.
