The value of an investment, and any income from it, can fall as well as rise and investors may not get back the amount invested.
The Japanese phrase nana korobi, ya oki: ‘fall down seven times, get up eight’ speaks volumes for the resilience of a nation that’s endured more than its fair share of tragedy and hardship.
March 11, 2021 marked a decade since the Great East Japan Earthquake, which left 22,000 people dead or missing, destroyed 122,000 homes and triggered a tsunami and a nuclear catastrophe at Fukushima.
Two months later the shinkansen (bullet train) line from Tokyo to Tohoku, largely destroyed by the tsunami, was back up and running. Embodying the spirit of nana korobi, ya oki factories were rebuilt, disaster recovery protocols enhanced, and companies took the opportunity to diversify and localise production to reduce future risks.
Fast forward to the 2020–21 global pandemic and the Japanese have coped in a similar spirit. Although lockdowns and social distancing have been less draconian than in the US or Europe, most people have followed guidance diligently and taken steps to contain the virus. The result has been fewer Covid-related deaths, while the economy has held up better.
Conversations with companies painted a picture of a stoic and self-possessed nation unfazed by the adversity ahead. Covid-19 for many companies is ‘just another crisis’.
But there are other dimensions to Japan’s resilience. First, a process of deleveraging and cash accumulation – beginning in earnest after the 1980s bubble burst and gaining momentum following the ‘Lehman shock’ in 2008 – has resulted in a corporate sector with unparalleled financial strength. Japanese companies have been criticised by investors for their inflated balance sheets. However, this war chest has allowed companies to retain employees, maintain investment plans and sustain dividends.
Well over half of non-financial listed Japanese companies benefit from a net cash position with almost 40 per cent boasting cash balances in excess of 20 per cent of net asset value. This explains why business investment fell modestly when the economy contracted sharply in the first half of 2020. Indeed, many of our holdings increased capital expenditure.
Global leader in industrial automation Fanuc continued to expand its line-up of collaborative robots and further develop its internet of things-based platform, despite a sharp fall in profits.
Similarly, leading manufacturer of industrial motors Nidec spent heavily on acquisitions and manufacturing capabilities when profits slumped, enabling it to capitalise on burgeoning demand. Even our holdings in skincare, which suffered when stores closed and tourism collapsed, have continued to increase their footprint in China and their advertising spend.
We expect clients to benefit as future growth prospects are realised.
As previously, dividend payments have been more resilient in Japan. There is a cultural aspect to this, with management teams not wishing to disappoint investors by failing to deliver. No doubt balance sheet strength has also played a part. Among holdings that suffered last year, very few made material cuts to dividend forecasts and, in aggregate, the falls in shareholder pay-outs have been lower in Japan. We can even cite several examples of companies that increased projected dividends while revising down earnings forecasts. This demonstrates both confidence and resilience, as well as improving attitudes towards corporate governance.
Second, although we prefer to focus on companies, the strength of Japan’s financial system is also worth highlighting. Unemployment has remained largely unchanged amid the pandemic, in sharp contrast to other countries. Joblessness is now estimated at around 3 per cent, close to full employment. Japanese banks have continued to expend lending, while the health of their corporate customers has spared them from major impairment charges.
Finally, although the Japanese Government chose to enact major stimulus last year with other developed countries across the world, Japanese households are awash with cash.
According to the Bank of Japan, Japanese households currently sit on cash savings of over $9trn, almost twice the size of Japan’s GDP. Once the world returns to normal, the capacity of Mrs Watanabe to spend and invest will be higher than ever.
It’s significant that the Olympic torch relay set off from Fukushima, a symbol of Japan’s reconstruction from earthquake and tsunami, a prelude to highly successful Olympic Games held during a global pandemic. It was yet another embodiment of nana korobi, ya oki, with the athletes embodying the true spirit of that saying.
Risk Factors
The views expressed in this article are those of Andrew Brown and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in September 2021 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
Potential for Profit and Loss
All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.
Stock Examples
Any stock examples and images used in this article are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.
This article contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this article are for illustrative purposes only.
Important Information
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.
Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.
Europe
Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018 and is authorised by the Central Bank of Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (‘FinIA"). It does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co.
Hong Kong
Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 is wholly owned by Baillie Gifford Overseas Limited and holds a Type 1 and a Type 2 license from the Securities & Futures Commission of Hong Kong to market and distribute Baillie Gifford’s range of collective investment schemes to professional investors in Hong Kong. Baillie Gifford Asia (Hong Kong) Limited 柏基亞洲(香港)有限公司 can be contacted at Suites 2713-2715, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. Telephone +852 3756 5700.
South Korea
Baillie Gifford Overseas Limited is licensed with the Financial Services Commission in South Korea as a cross border Discretionary Investment Manager and Non-discretionary Investment Adviser.
Japan
Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.
Australia
Baillie Gifford Overseas Limited (ARBN 118 567 178) is registered as a foreign company under the Corporations Act 2001 (Cth) and holds Foreign Australian Financial Services Licence No 528911. This material is provided to you on the basis that you are a ‘wholesale client’ within the meaning of section 761G of the Corporations Act 2001 (Cth) (‘Corporations Act’). Please advise Baillie Gifford Overseas Limited immediately if you are not a wholesale client. In no circumstances may this material be made available to a ‘retail client’ within the meaning of section 761G of the Corporations Act.
This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.
South Africa
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
North America
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.
The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission ('OSC'). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.
Oman
Baillie Gifford Overseas Limited (‘BGO’) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this material represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.
Qatar
The materials contained herein are not intended to constitute an offer or provision of investment management, investment and advisory services or other financial services under the laws of Qatar. The services have not been and will not be authorised by the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or the Qatar Central Bank in accordance with their regulations or any other regulations in Qatar.
Israel
Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.
Ref: 11139 10003056
