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Fidelity's Price: 5 stocks I'm backing in Japan

The Citywire A-rated manager of the Japanese Values fund identifies five stocks he holds that can profit from the country's economic upturn.

Citywire A-rated Nicholas Price's five of the best

The Japanese economy is benefiting from a synchronised global expansion and the corporate earnings cycle is improving against a more benign macroeconomic backdrop and a weaker yen (compared to last year).

The Bank of Japan remains fully accommodative and fiscal policy has the potential to support upside for economic growth.

On the downside, the uncertainty surrounding US trade policies and President Trump’s pro-growth agenda more broadly has led to a moderate strengthening of the yen, and could weigh on the performance of Japanese stocks in the near term.

Nevertheless, the US economy remains firm and the recent decline in long-term interest rates is unlikely to continue. From a valuation perspective, Japanese stocks compare favourably with other developed markets and companies continue to improve capital efficiency and increase shareholder returns.

Click through to see five of Price’s top stock picks in his Fidelity Japanese Values fund.

Citywire A-rated Nicholas Price's five of the best

The Japanese economy is benefiting from a synchronised global expansion and the corporate earnings cycle is improving against a more benign macroeconomic backdrop and a weaker yen (compared to last year).

The Bank of Japan remains fully accommodative and fiscal policy has the potential to support upside for economic growth.

On the downside, the uncertainty surrounding US trade policies and President Trump’s pro-growth agenda more broadly has led to a moderate strengthening of the yen, and could weigh on the performance of Japanese stocks in the near term.

Nevertheless, the US economy remains firm and the recent decline in long-term interest rates is unlikely to continue. From a valuation perspective, Japanese stocks compare favourably with other developed markets and companies continue to improve capital efficiency and increase shareholder returns.

Click through to see five of Price’s top stock picks in his Fidelity Japanese Values fund.

Kotobuki Spirits

Kotobuki is a relatively under-researched confectionary company that blends regional cultures and traditions into high-quality Japanese sweets and cakes that are distributed across the country for sale as souvenirs. The firm continues to generate brisk growth in earnings supported by its strong product development capability and price increases, as well as the expansion of its sales network to include Tokyo central station and international airports.

The expansion of the souvenir market in Japan driven by the increase in foreign visitors will support the company’s growth over the mid-to-long term.

Yamaha Motor

The company develops and manufactures motorcycles and other motor-powered products globally. The stock suffered in the first half of 2016 given the currency headwinds that accompanied increased levels of macroeconomic uncertainty globally.

However, this trend afforded me the opportunity to buy Yamaha Motor’s shares as I gained conviction in its earnings growth potential. I expect Yamaha Motor’s highly profitable marine business in the US and its motorcycle operations in emerging countries to drive growth in earnings over the next one to two years.

The in-depth research conducted by our analyst, who visited company plants and dealers in the US and Indonesia, really helped to cement this view.

Yonex

Yonex is a world leader in badminton, tennis and golf equipment. Sales in China are expanding rapidly, aided by the strength of its brand and its shift from the use of sales agents to direct sales by subsidiaries.

Despite some concerns about a slowdown in consumer activity post the Olympics, Yonex continues to report strong earnings, driven by sales in China and the rest of Asia.

The company is well positioned to benefit from growth in the Asian badminton market and rising demand for mid-range products as average income levels increase.

Morinaga & Co

This is a leading confectionary company with a strong domestic presence that is expanding overseas. It generates strong sales of health-related products and frozen snacks, and is improving the profitability of its mainstay confectionary business by rationalising its product line-up and focusing on core brands.

There is also the potential for greater collaboration and synergies with Morinaga Milk Industry.

Keyence

Keyence is a leading producer of sensors and measuring instruments used in factory automation (FA) globally. As increasingly data intensive manufacturing processes drive demand for sensors and vision systems, its highly profitable business model is well placed to deliver sustainable earnings growth.

The need for labour-intensive industries to introduce robots and FA is a long-term driver for the company.

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