Investment Strategies

EXCLUSIVE: Orbis Positive On Japanese Market After Equity Rebound

Amanda Cheesley Deputy Editor 29 August 2024

EXCLUSIVE: Orbis Positive On Japanese Market After Equity Rebound

After extreme market turbulence in August, Stefan Sommerville, the investment specialist for Bermuda-based Orbis Investments' Japan equity strategy, discusses the outlook and investment opportunities in Japan, outlining his top stock pics.

After Japanese stocks more than recovered the double-digit drop seen earlier in the month, Stefan Sommerville, the investment specialist for Bermuda-based Orbis Investments, is optimistic about Japan’s economic outlook. He thinks that there are a lot of attractive investment opportunities to be found there.

Sommerville said that the fundamentals haven’t changed significantly, and their portfolio has not changed. “There has been a lot of buzz around Japan,” he told this news service in an exclusive interview. He cited factors such as the rebound in tourism in Japan. Japan adopted a tough policy to curb Covid-19 and lifted regulations after other countries, opening the doors to foreign visitors – suffering the commercial consequences as a result. The tensions between China and the West have also deterred firms from relying on China’s supply chain for goods, which has impacted Japan positively.

“The improvement in corporate governance has been a huge factor in Japan. Wages, which have been flat for many years, are also improving,” he added. Sommerville favours Japanese mid-caps, saying that they should benefit from the improvement in corporate governance. He thinks that some of the large-cap names are overvalued.

Sommerville highlighted how Japan is a stock pickers market. Orbis, which has been investing in Japan for over 30 years, launched the Orbis Japan Equity Strategy in 1998. Although the strategy is not available in Orbis’ OEIC fund suite, it is illustrative of the firm's bottom-up approach for finding value in areas that others might have overlooked.

Top stock picks
Sommerville's top holdings include Japanese drugstores, notably the largest one Tsuruha Holdings, as well as Sugi Pharmacy. Honda Motor, is also a top holding as well as Koito Manufacturing. As a global leader in headlamps, Koito is a long-term partner for carmakers seeking to stand out in design and functionality. Due to its advanced technology and cost competitiveness, Koito is expanding beyond its core Japanese customer base, gaining market shares with American, Indian, and Chinese manufacturers, including BYD. Sommerville believes that Koito is a great example of the improvements underway in Japan today. He also invests in Stanley Electrics and Sumitomo Mitsui Financial Group, the Japanese mega-bank, which is Japan’s second largest financial group, and Mitsubishi UFJ Financial Group.

Other top holdings include Persol Holdings, a Japanese human resource management company which provides labour hire services to clients as well as TechnoPro Holdings, a large tech-focused staffing and service company in Japan.

Orbis isn't alone in favouring Japan and thinking that as a result of corporate governance reforms and other measures, the Asian country deserves more investor attention. Björn Jesch at German asset manager DWS, sees Japanese equities as an increasingly good alternative to Chinese equities – foreign investors have reduced their strong underweighting. Corporate reforms and improvements in shareholder returns are driving the market. Jesch would take advantage of the short-term weakness in selected stocks to build long-term positions. See more commentary here on Japan. 

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