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It ’ s a similar story with the MSCI Japan Index , which is trading below comparable US , emerging market , Europe , and Asia ex-Japan indices on a cyclically adjusted P / E basis .
Mitsui Chemicals provides one example of these dynamics , with the company trading at a price-to-book ratio of 0.86 as at 12 / 10 / 2023 . Masaki invested in the firm because they believe the company ’ s plans to improve profitability and mitigate some of the risks that come with being in a cyclical sector are already bearing fruit in the form of improved earnings . However , the market is yet to recognise this – hence the low valuation .
The company is also a good example of another key attraction that SJG offers , namely the ability to take positions in small and mid-cap Japanese companies . Partly that ’ s due to the trust ’ s size and closed-ended structure , but it ’ s also a result of the team ’ s local knowledge and the on the ground presence . Many smaller firms in Japan have little to no analyst coverage locally , let alone internationally , making it easier for SJG to find an informational edge .
Aside from Mitsui Chemicals , other SJG holdings provide good examples of the exciting opportunities that exist here . For instance , the trust currently has holdings in specialised electronics manufacturer Ibiden and Disco Corporation , a company that makes equipment used in the semiconductor industry . Both have performed well on the back of the AI boom .
SJG has had a strong 18 months , reflecting the bounce back Japan has had post-Covid , as well as renewed interest in its stock market . This built upon an already strong track record , with the trust delivering outperformance in the 1 , 3 , 5 and 10 year periods up to the end of September 2023 .
There are no guarantees that will continue moving forward . Nonetheless , the trust may benefit if
“ MANY SMALL FIRMS IN JAPAN HAVE LITTLE TO NO ANALYST COVERAGE LOCALLY , LET ALONE INTERNATIONALLY , MAKING IT EASIER FOR SJG TO FIND AN INFORMATIONAL EDGE …”
Japanese reforms continue and we see further inflows into the market from both foreign and domestic investors .
Our analysts say : “ Masaki ’ s bottom-up approach seems to us to be an attractive way to invest in the country . Macro trends , largely in rates , have driven global equities in recent years , leading to extreme rotations in the relative performance of growth and value . We would not expect this to continue [ with ] rates and inflation at higher levels , and any declines likely to be slower and complicated by weaker economic environments . As such , a stock-picking approach with a strong quality focus seems appropriate to us .”
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