Japan small cap investment trust JSGI well positioned in attractive Japan

JPMorgan Japan Small Cap Growth & Income plc (LON:JSGI) has now published its January 2024 factsheet which can be found below.

Month in review – As of 31/01/2024

• News of strong data in the US decreased the likelihood of rate cuts by the US Federal Reserve, which led the TOPIX Index to rally by 7.8% in Japanese yen terms. In terms of style tilts, value outperformed growth. At its January meeting, the Bank of Japan (BoJ) kept the policy rates unchanged in line with consensus. The BoJ has maintained its commitment to stabilise inflation with an increased optimism on achieving the target. Shunto wage hike negotiations started over the month, with negotiators pushing for positive real wage growth and increases to be persistent.
• The trust performed in line with the benchmark over the month, with both sector allocation and stock selection contributing mildly to performance. At the stock level, overweight positions in Lifedrink (nonalcoholic beverages) and Genky Drugstores (convenience stores) were among the top contributors to performance. The share price of Lifedrink rose on results, which were ahead of expectations. The share price of Genky Drugstores rose on expectations that the aggressively priced products of the company would help performance in an inflationary environment.
• On the other hand, overweight positions in Warabeya Nichiyo (packaged meals) and Infomart Corporation (business process software) were among the top detractors. The share price of Warabeya Nichiyo fell due to increasing competition from larger peers having an impact on the outlook for the business. The share price of Infomart Corporation fell on concerns of a potential slowdown in their invoicing business after a strong performance over the previous year.

Looking ahead – As of 31/01/2024

• A structurally tight labour market is expected to support the nascent positive trends in wage growth. Wage growth, currently driven primarily by large corporates, is expected to persist. This should help end Japan’s long period of damaging and seemingly intractable deflation and have a positive impact on consumption and the overall economy.
• Structural improvements in corporate governance and balance sheet management witnessed over 2023, are expected to continue providing a solid tailwind for stock selectors identifying companies starting to change. The Tokyo Stock Exchange, which has been encouraging Japanese companies to improve their capital allocation, recently released a list of companies, accounting for 40% of the Prime section, who have created plans to improve their capital efficiency.
• We believe it is more important than ever to focus on companies with solid balance sheets that have the flexibility to cope with any macroeconomic environment and where earnings are structurally growing.
• In our view, the combination of structural changes taking place in the Japanese corporate sector, combined with the country’s political stability, offers attractive investment opportunities for investors. As of the end of January, valuations in Japan remain reasonable, trading at 15.8x price to 1-year forward earnings and 1.4x price-to-book ratio.

JPMorgan Japan Small Cap Growth & Income Investment Trust (LON: JSGI) is actively managed by a Tokyo-based investment team and provides access to the innovative and fast-growing small and medium-sized companies that are at the core of the Japanese economy, while paying a regular quarterly income.