News

JPMorgan Japanese increases dividend for second year running

JPMorgan Japanese increases dividend for second year running – JPMorgan Japanese (JFJ) has posted its annual report for the year to 30 September 2021, during which time it experienced a period of underperformance during the first half of the 2020/21 fiscal year, and then outperformed the benchmark in the second half of the year.

Overall, during the full financial year, the trust’s total return on net assets, with debt calculated at fair value, was 10.7%, compared with a total return of 15.3% on its benchmark index, the Tokyo Stock Exchange First Section (in sterling terms). The share price total return, with dividends reinvested was 11%.

Income received during the year rose year-on-year, with earnings per share for the full year of 5.99p reflecting a recovery in the level of dividends paid and the strong balance sheets of portfolio companies.

The board’s dividend policy is to pay out the majority of the revenue available each year, and therefore proposes to pay a final dividend of 5.3p per share on 28th January 2022. This increase in dividends follows last year’s 2% increase, which was the first since 2017.

Investment manager’s report:

Background

Japan has suffered less than many other developed countries during the coronavirus pandemic, although it was forced first to postpone the Olympics and Paralympics for a year and then to hold them without spectators, which dramatically limited their commercial success. Japan’s state of emergency has now been lifted, and over 75% of the population is fully vaccinated.

In Japan, as elsewhere, investors greeted news of viable vaccines with enthusiasm, as at the time of writing Japan’s vaccination rate is 75.8% (of total population), the highest of the G7 nations (Canada is next with 75.4%). The TOPIX index rose sharply in late 2020 and early 2021, and market sentiment shifted in favour of companies expected to benefit from the vaccine rollout and economic re-opening. As in other major equity markets, there was a rotation into cyclical and value stocks. In the half-year report, we cited as an example the case of department store operators. Shares in these companies rose in anticipation of a surge in business as customers returned to stores to buy household and personal goods they were unable to purchase during lockdowns. But such a one-off, short-lived increase in activity is unlikely to move this sector off its trajectory of long-term structural decline, as consumers embrace online shopping with increasing enthusiasm.

The broader post-pandemic surge in demand will, by its nature, be temporary, and quickly exhausted, and gains in these recovery stocks may prove equally short-lived. Indeed, by the second quarter of this year, the TOPIX’s recovery rally appeared to have lost momentum and the index has traded broadly sideways during the second half of the Company’s financial year.

Inflation has accelerated sharply in several countries as economic recovery, supply side constraints and energy prices have combined. So far the impact on Japan has been much more muted and we see little sign of wage inflation. While a policy response of rising interest rates elsewhere might slow global demand the impact on the portfolio should be relatively muted given the focus on longer term growth companies. Additionally we believe that premium and quality companies have the pricing power to be able to cope with inflationary pressures. Nevertheless prolonged global inflation may have an impact on equity valuations globally and this may also include Japan.

Portfolio Themes

Japan has long lagged some countries in the adoption of technology, but COVID-19 is driving and accelerating change. Japan has embarked on a digital and IT revolution. Looking ahead, we expect to see industry consolidation and productivity growth through trends such as more flexible working practices, automation, artificial intelligence and cloud data storage. Information technology will be increasingly integrated into many aspects of daily life via online shopping, cashless payments, digital signatures and remote healthcare.

This trend is being encouraged by the Japanese government. Former Prime Minister Yoshihide Suga mandated the adoption of digitalisation within the government sector and we expect his successor, Fumio Kishida, whose position was confirmed in October’s general election, to maintain the reforms implemented by the Abe and Suga administrations. Digitalisation is now one of the portfolio’s key themes.

Environment is another theme which we have added over the past year, after former Prime Minister Suga made a commitment to reduce Japan’s carbon emissions to net zero by 2050. This announcement significantly increased public attention on the environment and the urgent need for climate change mitigation and we expect Prime Minister Kishida to stand by his predecessor’s promise. Currently, around one third of Japan’s energy is generated from coal, and it is also heavily reliant on natural gas. Renewable energy sources provide a relatively small part of Japan’s energy needs compared to Europe, so Japan is still at a very early stage in its transition to greener energy sources. There is therefore scope for rapid growth in this sector. Although there are political and technical challenges to be overcome, we expect the contribution of wind, solar, biomass and geothermal power to Japan’s energy requirements to rise steadily over time.

Japan is only at the beginning of the road to digitalisation and renewable energy, but these trends are already spawning many exciting new businesses, especially in the small and mid-cap space. Such growth-oriented companies will gather momentum over time and provide resilient, long-term sources of returns for investors. For example, our holdings in OBIC, a software company providing business administrative systems, Bengo4.com, Japan’s leading digital signature provider, and telemedicine company Medley are already benefitting from this trend, while we expect our position in Tokyo Electron, the semiconductor equipment supplier, to gain from associated increases in demand for data processing and storage. Over the past year we have initiated positions in several companies set to benefit from Japan’s transition to renewable energy.

JFJ : JPMorgan Japanese increases dividend for second year running

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…

Exit mobile version