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In the past 12 months, global investors have worried about a “regime change” in the long-term inflation outlook, as well as the heavy rotation away from technology companies after the Covid optimism reversed.

What are some of the biggest misconceptions about Japan? Strategists often argue that Japan is perhaps the most cyclical market amongst the major global economies, with profits highly correlated to global trade.

In the most recent data, Japan’s economy shrank less than forecasted during the first quarter of the year. With the vaccination program on high gear, are we finally seeing light at the end of the tunnel for Japan?

Looking back over 2020, a challenging year for many reasons, there were two key investment decisions that helped the performance of the FSSA Japan Equity strategy. Firstly, in the early days of the pandemic we started to identify companies that might benefit from the acceleration of secular investment trends.

The FSSA Investment Management investment approach focuses on identifying high-quality companies with strong management teams, dominant franchises and conservative financials. Additionally, we seek to invest in companies that have high return on invested capital (ROIC), strong and sustainable growth, and high earnings visibility.

With global markets declining, led by rising inflation and interest rates, how has Japan fared? Whilst not immune to higher food and energy costs, core inflation in Japan actually remains anaemic.

In our last client update in February 2021, we discussed the reasons we resisted the temptation to switch into pure cyclicals and so-called “value” stocks1 — even though we had anticipated a sector rotation in the market (the TOPIX subsequently peaked in March 2021).

The performance of the FSSA Japan Equity strategy has been under pressure year to date, driven by a violent style and sector rotation from quality growth to financials and cyclical companies.

Japan is among the leading countries for automation – Japanese companies make more than 50% of all industrial robots and computer-controlled systems globally.

Learn more about investing in Japanese equities with FSSAIM today. Our Japan investment fund strategies aim to achieve sustainable, long term growth.

There are fundamental differences in Japan’s economy to explain this. First, underlying consumption has stood still in the past decade or so.

With one of the oldest populations in the world, Japan has been planning for a future with fewer workers and more retirees for sometime.

At FSSA, our investment approach focuses on identifying high-quality companies with strong management teams, dominant franchises and conservative financials.

FSSA Investment Managers has been investing in Asia and global emerging markets for three decades. We are conservative investors, and resilience during market sell-offs has underpinned our long-term performance.

Fund Manager Q&A

In response to recent questions from our clients, we had a conversation with Martin Lau, managing partner and lead portfolio manager for the FSSA Asian Equity Plus and FSSA China Growth strategies.

With over 20 years managing money in China I have seen significant changes both in the corporate and investment environment. One of the biggest shifts that has occurred is the fact that China is not short of investment capital.

Read the latest news and investment insights from FSSAIM's leading investment experts. We're specialists in APAC and Global Emerging Markets investments.

Discover our range of APAC & Emerging Markets (EM) funds today. FSSAIM are investment specialists for China, India, Japan and emerging market equities.

How is the FSSA Asian Growth portfolio positioned in light of the challenging market environment? Firstly, we should note that we are agnostic about indexes.

Lee Kuan Yew, although somewhat a polarising figure, perhaps understood state power and the human condition better than anybody. Consequently, Singapore has often been criticised as much as it has been greatly admired. Irrespectively and without question though, the country has gone from strength to strength.

FSSA Investment Managers Asia Pacific webcast: Positioning for Reflation

At FSSA, we are long-term, bottom-up investors with a focus on quality. This mind-set also applies to how we engage with companies on Environmental, Social and Governance (ESG) matters.

In our last client update, written through the depths of Covid-despair, we observed that real life and the world of markets are seldom so intimately entwined. With markets swinging violently to the downside on a riptide of fear, it was clear even then that activity was being driven by short-term anxiety rather than a real evaluation of Asia’s longer-term value-accretion prospects.

2020 was indeed a very special year. The whole world was in a recession, due to the pandemic and strict lockdown measures imposed by governments all over the world. Yet, at the same time, all asset classes, including equities, had a very good year in terms of returns.

Though Covid hasn’t yet finished with us, the markets have finished with Covid. In real life, there is still plenty of misery to go around, but things have seldom been better for investors. Optimism has served us well, as the money printing presses have rolled to counter the “unprecedented” threat.

As Asian countries become richer, they have been transitioning towards consumption-based economies, translating higher per capita income into increased spending across goods and services.

Many people seem to think that money management is about predicting the future. But even with the gift of perfect foresight, the subsequent market reaction to news is often far from obvious.

In boom times like today, when cash costs nothing and capitalisation rates are zero, everybody is focused on growth and the future. Revenue is vanity in the sense that entrepreneurs, thank goodness, dare to dream and build businesses. We too, spend much of our time looking for the next opportunity and indeed thinking about how much businesses can grow.

Alistair Thompson, Director at FSSA Investment Managers, heads up the FSSA Asia Pacific strategies and looks back on 2021 in the video below.

Martin Lau, Managing Director of FSSA Investment Managers presents the Asia Pacific equities strategy client update.

Richard Jones, Director at FSSA Investment Managers, heads up the FSSA Asia-Pacific strategies and looks back on 2021 in the video below.

In the Asian markets, investors have gone from “anything, as long as it’s China” to today’s high levels of fear and disbelief, but that is typical when markets fall significantly.

Markets will always do their best to push us to act in a short-term and emotional manner, particularly at times when events become somewhat extreme. These days all of us, market participants or not, seem almost entirely focused on uncertainty rather than promise. This is why having a strong philosophy and process is crucial.

As the world continues to lurch from Covid-surges to reflexive and localised lock-downs, everybody is now looking through to a mythical status quo ante bellum – the before-Covid-times, when the world was just hunky-dory.

Every downturn is different – the Global Financial Crisis and the Asian Financial Crisis were primarily debt-related, while SARS and Covid are obviously health-related, with a knock-on effect on growth and consumption.

Learn more about investing in Asia Pacific equities with FSSAIM today. Our APAC investment funds are invested for sustainable, long term growth.