Japan - Finding Growth Opportunities in Health Care

SPONSORED BY : Matthews Asia

By Kenichi Amaki, Portfolio Manager, Matthews Asia

Added 5th October 2016

When investing in Japan we do not presume that everything is roses when it comes to its economy. Sluggish economic growth means the macro backdrop remains challenging, and questions are being raised about the effectiveness of Abenomics, while the country’s demographic problems are well documented.

Japan - Finding Growth Opportunities in Health Care

Yet amongst these headwinds we, as active managers, believe there are some strong Japanese companies which can thrive despite these conditions. One of the factors hurting Japanese companies at present is the strength of the yen. Larger multinational companies which have a bigger proportion of their earnings coming from overseas - such as the automotive and electronics sectors – tend to be impacted. The companies less affected by currency moves are mostly the domestic orientated companies.

The Matthews Japan Fund seeks to invest in three different types of Japanese growth companies: those that capture domestic demand, companies that are regionally expanding into Asia, and finally global leaders.  Regardless of currency moves, one of the areas where we see opportunity is the health care sector which can straddle all three buckets.

Japan is an ageing society and there will be a natural increase in demand in their healthcare needs. It is a sophisticated health care market, one of the largest in the world for pharmaceuticals and medical devices. Companies that can revolutionize health care, for example through health care technology, are looking at a huge opportunity. 

However we are also focused on those companies which are able to accumulate the experience of operating in this market and then extrapolate it into other markets around the world.  Japan is not the only country getting older, and as the US, Europe and China experience issues relating to longevity and the rise of lifestyle diseases, the types of procedures which are commonplace in Japan today will become more so around the world. Indeed there is a need for health care infrastructure expansion and health care technology to address this demographic challenge. As a result I believe companies, as long as they have a competitive advantage, can significantly expand their business outside of Japan. Some of these healthcare companies can still be termed domestic niche companies, whereas some have already transitioned into global leaders.

The growth in opportunities in the health care sector demonstrates how investing in Japan has changed dramatically in the last 15 years when most investors focused on large exporters and values stocks. Today we see companies that are taking advantage of growth opportunities in domestic and global markets where businesses and consumers have new product and service needs. These are the types of companies that we are aiming to capture in the portfolio. We call it Japan 2.0 versus Japan 1.0.

To learn more about how we capture all-cap growth opportunities in Japan visit global.matthewsasia.com

For Professional Clients and Eligible Counterparties Only.

The views and information discussed in this article are as of the date of publication, are subject to change and may not reflect the writer’s current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation, but no representation or warranty (express or implied) is made as to the accuracy or completeness of any of this information. Matthews International Capital Management, LLC (“Matthews Asia”) does not accept any liability for losses either direct or consequential caused by the use of this information.

This document is not a Prospectus/Offering Document and does not constitute an offer to the public. No public offering or advertising of investment services or securities is intended to have taken effect through the provision of these materials. An investment in Matthews Asia Funds may be subject to risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of a concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies. Please see the Prospectus/Offering Document for a Fund for additional information about the risks of investing in a Fund. This discussion of the risks associated with investing in Matthews Asia Funds is not exhaustive and prospective investors should consult a Fund’s Prospectus/Offering Document before making an investment decision.

This document is only made available to professional clients and eligible counterparties as defined by the Financial Conduct Authority (“FCA”). Under no circumstances should this document be forwarded to anyone in the UK who is not a professional client or eligible counterparty as defined by the FCA. Issued in the UK by Matthews Global Investors (UK) Limited (“Matthews Asia (UK)“), which is authorised and regulated by the FCA, FRN 667893.

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