Schroder Japan (SJG) has released its annual results for the period ending 31 July 2023.
- Over the 12 month period SJG reported a NAV total return of 11.7% and share price total return of 18.7%. This compares favourably to its benchmark return of 9.4% and is SJG’s third year of outperformance.
- Positive contributors to SJG’s performance included its financial stocks, which benefited from the Bank of Japan unwinding its prolonged period of ultra-low interest rates and yield curve control. The largest contributor to SJG’s performance was Ibiden, a semiconductor manufacture, which benefited form the surge in interest around AI stocks.
- During the year SJG changed its name from Schroder Japan Growth to Schroder Japan.
- Over the year the board repurchased 2.1m shares for cancellation, which is c 2% of the current circulation. SJG currently trades on a 9.3% discount.
- The board has proposed a change to SJG’s investment policy to allow for the use of contracts for difference (CFDs). It believes that the cost of using CFDs to increase investment exposure is currently lower than the cost of traditional borrowing. SJG ended its financial year with gearing of 9.5%.
- The board has declared a final dividend of 5.4p per share, a 10% increase on the prior year, and fully covered by the trust’s revenue.
SJG’s investment manager commented:
“We believe that the Japanese equity market currently provides one of the most attractive opportunities, particularly for long-term investors. Several developments that are unique to Japan should combine to support sustained corporate earnings growth and increasing valuation multiples in the years ahead.
“From an economic perspective, we should see a continued cyclical recovery following the lifting of Covid restrictions. More importantly, after more than two decades of deflationary pressure, the emergence of “positive” inflation, led by wage growth, is immensely encouraging. Not all inflation can be viewed as positive, but Japan is experiencing lower rates of inflation than in many other parts of the world. This suggests that the re-emergence of inflation in Japan can be viewed as an opportunity rather than a threat.
“Indeed, the implications of this positive inflation should not be under-estimated for corporate Japan. This is an environment in which Japanese companies can regain pricing power (the ability to raise prices in response to inflation) which, when coupled with improved consumer purchasing power through wage increases, should drive healthy levels of corporate earnings growth.
“Meanwhile, corporate governance reforms are likely to remain a structural driver of the Japanese equity market in the years ahead…. The success of these initiatives is reflected in the level of dividends and share buybacks from Japanese companies. These have been rising steadily in recent years and currently stand at record levels, but there remains scope for considerable further positive progress as the corporate governance revolution unfolds.
“The Japanese stock market has reached multi-decade highs in recent months in response to these positive domestic developments. Nevertheless, the equity market as a whole looks attractively valued when compared to other regions’ markets and in the context of history. Many listed Japanese companies continue to trade below their book value despite the ongoing corporate governance movement. This suggests the market is not yet fully reflecting the progress that many businesses are making to improve returns.
“There are many reasons to believe that we may be entering a period of sustained outperformance from the Japanese stock market. We are seeing renewed appetite for Japanese equity from global investors and this demand should continue to grow as the positive domestic story becomes better understood. This represents a fertile environment for active, high conviction stock pickers, and we are excited at the opportunity that lies ahead for investors in the company.”