Midas International Asset Management Ltd., an Asia-based fund manager known for its successful investments in Chinese shares, is now turning its attention towards Japan. The firm’s co-manager, Julia Yoo, has cited the country’s burgeoning technology sector and the reopening of the economy as key factors driving this shift.
While Midas International had previously shown optimism in China, Yoo explained that sluggish consumer spending and inadequate policy support have led to a longer-than-anticipated recovery period. As a result, the fund has decided to decrease its exposure to China and increase its investments in Japanese companies.
Japan’s Appeal: Rising Wages and Favorable Economic Conditions
Yoo believes that rising wages in Japan will stimulate consumption, while a weakening yen could attract more tourists from overseas. Midas International sees potential in Japanese consumer-focused companies that weathered the country’s economic challenges and are now poised for growth in the United States and Europe. Additionally, the fund has increased its positions in Japanese technology firms, capitalizing on the rally in artificial intelligence and electric vehicle-related stocks.
Managing China Risks and Shifting Portfolios
The fund has taken steps to manage risks associated with the Chinese market. It has reduced the China portion of its portfolio from 28% at the end of 2022 to 19% as of May 2023, while increasing its exposure to Japan from 40% to 45% during the same period. These adjustments reflect the fund’s cautious approach and its efforts to adapt to changing market dynamics.
Midas International’s success in the past can be attributed to investments in Chinese companies like Li Ning Co., Kweichow Moutai Co., Top Education Group Ltd., and Proya Cosmetics Co. These holdings have helped the fund outperform its peers, delivering a 9.2% annualized return over the past five years compared to the average of 2.2%.
Japan’s Favorable Factors and Growth Potential
The fund sees Japan as an attractive alternative to China due to several factors. First, the reopening of the economy has created opportunities for companies such as Oriental Land Co., the operator of Tokyo Disney Resort. Second, the Bank of Japan’s commitment to maintaining an easy monetary policy, while other central banks are raising interest rates, provides stability. Finally, the yen’s depreciation has bolstered exporter earnings, adding to the appeal of Japanese stocks.
In addition, the ongoing restructuring of the global supply chain amid tensions between the United States and China has benefited Japanese firms like Panasonic Holdings Corp. and chip-equipment suppliers. Companies seeking to diversify their supply sources have turned to Japanese manufacturers, leading to increased demand.
Navigating the Chinese Market and Long-Term Prospects
Despite the shift in focus towards Japan, Midas International recognizes that certain sectors within the Chinese market continue to perform well. The fund has increased its holdings in semiconductor and electric vehicle-related stocks, such as Li Auto Inc. However, Yoo emphasizes that China’s overall stock market recovery depends on Beijing’s commitment to supporting the property market. Resolving issues related to the real estate market and youth unemployment rates will be crucial for sustained growth.
For now, Midas International remains optimistic about Japan’s prospects, believing that the momentum driving the country’s rally will continue in the near future. The fund manager sees Japan as a promising investment destination with untapped potential and favorable economic conditions that make it an attractive choice for investors seeking long-term growth opportunities.
©2023 Bloomberg L.P