Paul T. Rubens
Yuki Sees Pandemic Rebound in Japan Gaining Pace
Japan’s economic downturn from Covid was relatively confined and its hosting of the Olympics was a success, but Japan's recovery from the pandemic has been held back by the bureaucratic misstep of not securing ample vaccine supply earlier. As recent as 2 months ago, Japan’s national vaccination rate was at 2%. Today, with vaccines approved and available, the rate is at 30% and with ~one million vaccinations taking place each day, the level is expected to rise to 70% by the end of October.
Tokyo-based Yuki sees vaccination rates as key to neutralizing the Covid pandemic globally and the rapid vaccination rate occurring in Japan should further support the strong earnings momentum Yuki is seeing in its growth universe.
Presently, Japan’s TOPIX is showing similar EPS growth as the S&P 500 at 33%, but trades at a lower multiple 17x vs 23x for the S&P. In terms of quality of earnings, TOPIX’s dividend yield is at 2.1% vs 1.4% for the S&P. EPS growth for Yuki’s growth universe is at 67% for FY2021 and earnings growth momentum has improved to 20% for the current fiscal year.
Some 80% of listed Japanese companies that announced earnings in the most recent April-June quarter beat estimates . In its recent note, J.P. Morgan Securities pointed to the pandemic rebound taking shape in Japan and how investors could best position themselves. Yuki concurs and has constructed a portfolio that provides exposure to a number of Japan’s key growth sectors: automakers, infocom, gaming, equipment and others, through a comparatively under-researched set of equity names.
The Yuki team maintains that markets are rational and that such solid fundamental underpinnings for Japanese equities, at a time when this pandemic rebound is gaining pace, provide a favorable entry point for those under-allocated to Japan/Asia and Yuki's growth strategy an asymmetrically positive risk/return profile compared to a passive approach to Japan through ETFs.