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
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