The land of the rising sun, as it has been called for a long time, Japan is an enigmatic country. Home to some of the top technological companies, it is also home to some of the oldest continually running businesses in the world. Kongo Gumi, a construction company that’s now part of the Takamatsu group, was established in 578 AD. The industrialization of Japan began during the Meiji Restoration period, beginning in 1868 and Japan rose to become a major industrial and military power. The results of WW2 changed the course of the nation. After WW2, Japan was reconstructed under the US and the Allied powers, and the country made its next major leap. Between 1952 and the early 1970s, Japan’s economy grew at an average of over 8% a year, propelling it to one of the largest economies in the world.
The growth in the economy continued into the 80s and the country became the hub of innovations across multiple industries. However, the growth also coincided with an asset bubble that saw Japanese stocks, real estate, and other assets rising rapidly in value. In the late ’80s, Japan accounted for almost 50% of the world markets by market cap. This asset bubble burst in the early 90s and what followed was more than two decades of low growth, de-leveraging, and weak corporate profitability. Japan also began a policy of ultra-low interest rates in the mid-’90s, a policy that continues to date.
When Shinzo Abe came to power in 2012, the country was reeling from the great earthquake of 2011. Abe ushered in his 3 arrows policy to spur the economy into growth. These involved following a liberal monetary policy, expansive fiscal policy, and corporate reforms. While the economy did not soar, it did clock over 70 months of consecutive growth and Japanese stocks gained popularity among money managers across the world.
Japan continues to remain one of the popular markets for global investors, with cutting-edge technology firms, large industrial majors, robotics and factory automation players, medical equipment makers, and financial services companies. More importantly, Japan is very attractive from a valuation perspective. It is one of the cheapest markets in the world, measured in terms of valuation ratios, seen in the chart below.
With attractive valuations, Japan also offers companies with attractive growth characteristics as well. Many Japanese companies trade as ADRs in the US. Let us look at some of the top Japanese ADRs.
Toyota Motors is one the largest manufacturer of passenger vehicles in the world by volume. The firm sells over 10 million vehicles across the world every year. Toyota is also a major player in the hybrid and electric vehicle market. The firm recently announced a $3.4 billion plan to build EVs in the US. In addition, Toyota is also a pioneer in fuel cell technology. Its fuel cell vehicles would use hydrogen as fuel and emit water vapor.
Takeda Pharmaceuticals is a multinational pharmaceutical company and is one of the top 10 Pharma companies in the world. Takeda operates across multiple fields including oncology, neuroscience, plasma, and therapeutics. In 2019, Takeda acquired the UK-based Shire, in a $50 billion deal, one of the largest in the industry.
Mitsubishi UFJ is a bank holding company and financial services major with operations across the world. The firm operates across retail and commercial banking, investment banking, asset management, and capital markets. MUFJ also owns a 23% stake in Morgan Stanley, a major US financial company.
Orix Corp is a diversified financial services company based out of Tokyo. The firm offers lending & leasing, insurance, real estate financing, investment banking, brokerage, and venture capital services. Through its holdings, Orix offers its services across the world. The company has made a few acquisitions in the renewable energy field and aims to become a major player in the nascent field.
Nomura Holdings is the holding company for the Nomura group. The Nomura group includes over 15 different businesses including securities, asset management, trust and banking, research and technology, real estate, and investment banking. Nomura operates businesses across the world and has over 26000 employees.
Sony needs no introduction. This Japanese electronics behemoth is a major player across multiple sectors. With its PlayStation, Sony is the number one company in gaming consoles. Sony is a vital cog in the global smart devices market and manufactures many critical parts, especially in the optical and image sensor areas. Sony is also a significant player in the entertainment business, with its music and movie production business.
Canon, based out of Tokyo, is primarily well renowned for its printers and cameras. Canon offers printing solutions to both retail and industrial uses. Canon has leveraged its expertise in camera technology and offers network cameras and industrial use cameras. The firm is also involved in medical imaging technologies and semiconductor lithography.
One could invest directly in the many ADRs that are available in the NYSE. There are also a variety of ETFs available that offer exposure to the Japanese markets. Some of them are iShares MSCI Japan ETF (EWJ), JPMorgan BetaBuilders Japan ETF (BBJP), WisdomTree Japan Hedged Equity Fund (DXJ), Franklin FTSE Japan ETF (FLJP), iShares Currency Hedged MSCI Japan ETF (HEWJ).
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