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Japan's Undervalued Companies Offer Opportunities

Strong demand from Asia have boosted results for Japanese companies, but there are risks

Morningstar Equity Analysts 27 September, 2017 | 9:28
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Morningstar equity analysts see opportunities to pick up select stocks, with almost one third of our covered stocks undervalued, which are in the consumer, financials, industrial, and technology sectors with strong competitive advantages.

Despite the recent uptick in domestic economic activity in Japan, we doubt that domestically driven growth opportunities are sustainable. Given our view that structural reform in Japan will be slow, we still prefer companies with global expansion opportunities. Recent results from some Japanese companies point to strong demand from Asia and particularly China, especially for higher value-added goods.

We think this trend will continue over at least the next five years, led by demographic changes in China that should sustain its drive to mechanise, as well as rising wealth in Asia to boost inbound tourism spending in Japan and on Japanese goods externally. We believe the Tokyo Olympics in 2020 should continue to build the Japanese brand, and we expect the introduction of casinos thereafter to sustain tourism.

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About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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