Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Nicholas Weindling. He is Manager of the JPMorgan Japanese Investment Trust. Hello.
Nicholas Weindling: Hi, Holly.
Black: So, thanks for joining us. You're based in Tokyo to run this trust. What is the outlook there at the moment, the general feeling in the markets considering we're halfway through the year and well into the hopefully recovery phase of the coronavirus crisis?
Weindling: Right. So, yeah, you're right. We're based here. I'm based here. And I think that's made a really big difference over the last few months because Japan has not really been in focus because actually it hasn't had such a bad experience as other places, for example, the UK and the number of people who unfortunately died here is still only around 1,000 people which is quite a lot of less than elsewhere. So, things are getting back to normal pretty quickly. There's a lot of people in the streets, on the trains, people getting back to work. There's a bit of a rise in the number of daily cases, but hopefully things will start to normalize.
One big difference between Japan and rest of the world, I think, that's very important about the market is that companies here have dramatically stronger balance sheets than in the rest of the world. Actually, if you look at the balance sheets, 50% are net cash positions and in Europe and in the US, it's about 15% to 20%. So, we haven't seen wholesale dividend cuts or equity raises. And actually, in that respect, it's been a much – somewhat easier time, I think, for the corporates because they've got those resilient balance sheets.
Black: And yet, despite that Japan seems to have fallen off a lot of investors' radars. Why do you think that is?
Weindling: Well, a lot of people over the long-term have had quite a bad experience investing in Japan and I think a lot of people when they think of Japan, they either think of these great companies that there were like – things Sony and Panasonic and Toyota and Honda and Nissan or they think, oh, the population is aging and that's very difficult. All those things are true but it doesn't matter for (the market) particularly and it certainly doesn't matter for picking stocks and I always think that where we're looking for is great companies that happen to be listed in Japan rather than just thinking about Japan market overall. In fact, I think it's very important to avoid certain parts of the market here.
Black: And are there particular areas of the market that you really do like?
Weindling: Yes, I think if there's – to encapsulate it probably in just a sentence what we'd say is that there are great companies in Japan but they are not in the areas that people expect and Japan is basically following exactly the same trend as the UK or Korea or the US but with a time lag. So, when you look at things like ecommerce, it's still a relatively low percentage here. It's only around 8% which is a lot lower than, for example, the UK We basically have no food retail online, for example. If you look at cashless payments, well, still in Japan 80% of transactions are carried out in cash which is almost unthinkable now that you would do that in London or the rest of the UK If you look at something like online advertising, it's still – you know, whereas online advertising overtook television in the UK in about 2009, that only just happened here. So, there's lots of different things where we are behind the curve from everywhere else but exactly the same thing is going to happen here and that is a great environment for stock picking, especially if we can use JPMorgan's analysts from overseas and kind of find – look at what they are looking at and find a Japanese equivalent kind of company, it can be very powerful.
Black: And the Japanese yen is also seen by a lot of people as a safe haven currency. It's very strong. It's unlikely to default. Has that helped the prospects of Japanese companies in recent months?
Weindling: Well, I think the main story in terms of the currency is that it's basically done nothing now for about three years. So, it's been incredibly stable. It's almost impossible to see much movement on a chart at all. And so, it has been – it's just not been an issue. In fact, we get asked very little about it. And ultimately, I think that – well, for domestic companies, there's a huge opportunity for domestic companies as we see them start to use more online solutions, so the yen doesn't matter. And for companies going overseas, we really focus on high-quality companies which have number one share. And when you are number one, you have pricing power. So, for them, it really is a matter where the yen is strong, because, okay, with the time lag but they will be able to pass anything through to the end customers.
Black: Nicholas, thank you so much for your time. For Morningstar, I'm Holly Black.
