As Japanese firms continue to consolidate, Rupert Kimber, a partner of Geneva-based specialist fund manager Quaero Capital, discusses the economic outlook and long-term investment opportunities available in the region, outlining his top stock picks.  

Although Japanese stocks have recovered significantly since the August market shock, Rupert Kimber at Quaero Capital has a more nuanced view about the market outlook, saying it won’t be as easy as it has been.  

“We’ve had an easy period. The next 12 months won’t be as easy,” Kimber told this news service in an exclusive interview. “The weak yen has helped exports, making them cheaper to buy, which could change if the yen strengthens.”

In August, there was continued volatility in the yen. After strengthening in the first week of the month, the mood from the Bank of Japan (BOJ) suggested more caution with hiking rates and the yen proceeded to decline once more. In equity markets, this led to renewed interest in a number of export sectors, particularly in tech-related names benefiting from the strength in IT and artificial intelligence-related demand.

“The global environment is also challenging,” Kimber continued. “The US economy has been strong which helped to offset China’s economic slowdown but now the US economy is slowing down whilst Europe is flattish.” 

“However, there are still many fragmented, undervalued companies in Japan and there is scope for consolidation,” he said. With the leading companies accounting for 4 per cent of the market, compared with 19 per cent in Europe and nearly 40 per cent in the US, the scope for consolidation is significant.

“They are also quite competitive globally so there is no imminent danger. There is still some private equity money on the sidelines too so I am quite positive,” he continued.

The improvement in corporate governance has been a positive factor for Japan; Kimber believes that there is still pressure for it to improve. Japan’s new prime minister Shigeru Ishiba has also pledged to devote himself to regain trust, revitalise the economy, and address security threats. His appointment has been viewed positively by many wealth managers including abrdn. See more commentary here. 

Quaero Capital Funds (Lux) – Taiko Japan
Kimber, who has been involved in Japanese equities since 1986, is a lead manager of the Quaero Capital Funds (Lux) – Taiko Japan which aims to achieve long-term capital growth by investing in listed Japanese companies. Launched in 2020, the fund has outperformed the index this year, and seeks to profit from investment opportunities by identifying undervalued securities. It has a concentrated portfolio, typically holding between 20 and 30 different positions at any given time but with diversification across multiple sectors.

Stock picks
Kimber singled out Yoshmiura food as one firm he invests in, which promotes the grouping of small and medium-sized food enterprises. He highlighted the firm’s recent foray into the Japanese scallop industry, saying that it appears to be in an interesting position.

The firm sees scope for a repeat of their scallop success in other product segments in the food industry. The company remains highly undervalued and, with an enlarged presence in the scallop business, a potential return of multiples of the current share price remains realistic. Institutional investor interest in the company is also rising.

Kimber has two investments in the waste management industry, Daiseki and Daiei Kankyo. He also invests in Niterra, a manufacturer of ignition parts and vehicle electronics.

Top five holdings include Tokyo-headquartered multinational Hitachi and Japanese tech multinational Nec Corp. Another top holding is insurance group Tokio Marine Holdings, IT firm Otsuka Corp, and Chiba Bank.