Investing in Japanese smaller companies is a niche pursuit, admits Baillie Gifford Shin Nippon’s Brian Lum, but that’s ‘precisely the opportunity’ on offer from the ‘world’s most overlooked’ market.
The fund manager says that although Japan’s smaller growth companies can be growing profits at double-digit rates annually, some trade at ‘truly staggering valuations’, as investors shun them for more popular markets.
At a time when there are concerns around the over reliance of the global stock market on a handful of high-flying huge US tech stocks, this could provide investors with the chance to diversify into much cheaper companies that still offer growth.
On this episode of the Investing Show, Lum joins Simon Lambert to discuss Japanese smaller companies and how Baille Gifford Shin Nippon invests.
The trust posted a healthy 16 per cent share price return over the past year but has suffered over the long-term, as the mood turned against smaller companies and Japan and investors chased big US growth companies.
This means Baillie Gifford Shin Nippon investors have not been rewarded, while the global market has climbed. The trust is down 14 per cent over three years and over five years it is down 51 per cent on its pandemic era peak.
Lum says sentiment has suffered as ‘nobody needs to invest in Japanese small caps’ but this creates a ‘very exciting opportunity for those with a bit of patience’.
He talks through the impact of Japan’s new business-friendly Prime Minister – Sanae Takaichi – its first female leader, and why Japanese small caps can provide some insulation from global turmoil.
Lum also discusses some of the stocks the investment trust holds, ranging from badminton racket maker Yonex to a disruptive real estate company that has created a capital-light approach to property.
*Simon Lambert has a small long-term personal invesment BG Shin Nippon in his stocks and shares Isa. No trades have been made recently or will be made in the near future