Japan - an innovation hub for the patient investor

When we’re talking stocks in robotics, AI, and EV batteries, we might be inclined to think we’re dealing with a fast-paced, volatile market - one that pits risk-inclined investors against one another as they try to keep pace with pioneering technological advances and multi-billion-dollar corporate R&D programmes as they reckon with the knowledge that the right investment could dictate the future course of human society…?

…the reality of the Japanese equity market, however, doesn’t quite live up to this billing. While our preconceptions of Japan may manifest themselves in a series of images of neon lights, futuristic technology, and scores of ant-like commuters dashing across Shibuya Crossing, Japanese stocks move at a much slower pace.??

This in equal parts fascinating and sobering assessment was shared by Simon Edelsten, co-manager of the?Mid Wynd International investment trust and the Artemis Global Select fund, who joined us for our latest Curation Collective call:?AI, Japan and Beyond: a look at equity markets in 2023.?

Japanese equity sluggishness may appear at odds with our assumptions of vibrancy and innovation, but Simon warned that - in the equity market at least - “nothing changes very quickly in Japan.” Indeed, investors expecting the “obvious in the next few years” should look elsewhere as market reactions simply “take longer.”??

Protracted market reactions shouldn’t discourage investors from Japanese stocks though, far from it. They offer high rewards – enhanced further by recent regulatory change – that should be music to the patient, unorthodox investor’s ears.??

Some of Simon’s key takeaways included:?

• Follow the prevailing winds -?“When Japanese stocks point in the right direction, there’s nothing much going to stop them” - in other words, those keeping a watchful eye on market movements and willing to patiently wait out periods of stasis could be in line for big returns.?
• Japanese regulatory changes offer unique opportunities– New Japanese corporate tax laws mean companies can essentially buy and sell subsidiaries without paying tax. Entire companies can be bought out of the marketable securities and cash on the balance sheet – an inconceivable reality in other stock markets.?
• (Comparatively) unchartered territory -?Language barriers and perceived inactivity have generated a low knowledge base of Japanese stocks. The equity market is a largely untapped resource for US and European investors compared with other major markets.?
• Bang for your buck -?Japanese stocks are great value for money – “you get much more per dollar than you get in any other market”, revealed Simon.?

So, if you’re looking for an adrenaline-fuelled investment experience, Japanese equities may not be the market for you. However, for those looking to channel their inner zen mindset and adopt a long-term investment approach, you may not find a more fruitful, rewarding market than Japanese equities.?