July 2024SPARX Japan Asia Focus Strategy Introduction of SPARX Japan Asia Focus Strategy

SPARX Japan Asia Focus Strategy is an all-cap Asia including Japan equity strategy. We aim to capture the opportunity across the whole Asia using the same unified approach. Due to the historical reason that Japan had an outsized weighting in Asia, the asset management industry has evolved around separating Japan and Asia-ex-Japan. The same is true for the talent development in the industry, where talents are often classified and trained as talents of Japan equity and talents of Asia-ex-Japan equity. Given the growing economic ties within Asia, we believe that investing in the region as a whole is one of the best approaches to capital allocation.

Investing in Asia as one

One of the key advantages investing in Asia as one is to take advantage of mispricing across the value chains in Asia. Asia is a large manufacturer of the world and has long value chains across many industries. Take semiconductor as an example, Japan has some of the world's leading semiconductor production equipment (SPE) and materials companies. On the other hand, Taiwan has some of the best design companies in the world, in addition to Taiwan Semiconductor Manufacturing Company (TSMC). South Korea is a dominant player in memory semiconductor. While semiconductor is a structurally growing industry, it is notoriously cyclical. As different parts of the value chain perform differently in different part of a cycle, there are often mispricing opportunities across different players in Asia. It is one of our key opportunities to exploit such mispricing.

Second, Asian countries are vastly different in the stage of development, ranging from highly developed economies such as Japan and South Korea to developing economies such as India, Indonesia and Vietnam. Each market offers unique opportunities and we can form a diversified portfolio of such unique opportunities. For example, Japan is a global force of soft power with opportunities in intellectual properties such as animation, video games, manga, etc. South Korea is an up-and-coming players on this front with the rising export of K-Pop, K-Food and K-Beauty. Taiwan has a strong semiconductor ecosystem. China, India and ASEAN have huge population and underpenetration in wide range of consumer services, offering opportunities across consumer, infrastructure, financials, etc.

While these countries differ in the stage of development, there are certain commonalities within Asia. For example, the ever-expanding affluent class in emerging Asia are rising customers of high quality Japanese, and increasingly Korean, consumer products including sportswear, cosmetics, food, and so forth. On the manufacturing side, many Japanese and Korean companies are investing in the emerging Asian countries to take advantage of the cheap labor cost. In our opinion, the tightening ties within the region will not stop. By researching the region as one, we believe this gives us an analytical edge.

Our approach

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." - Warren Buffett[i]

SPARX Japan Asia Focus Strategy invests across Asia with the same team of talents investing in both Japan and Asia-ex-Japan using the same lens. At the same time, we leverage SPARX's research platform across Japan, Korea and Hong Kong. We aim to run a concentrated portfolio of 25-35 holdings to capture the best opportunities available in Asia.

We look for companies with strong and resilient businesses, run by people who allocate capital efficiently, and then we invest in the stocks at attractive valuation. Consideration is also given to catalysts that can actively close the value gap.We place particular emphasis on the strength and competitive advantage of the companies, instead of mere growth. We are completely fine with strong companies who may not have a lot of organic growth opportunities, as long as the management recognize that and allocate capital rationally, such as repurchasing share at attractive price. We believe this differentiates us with many other market participants who put themselves into the value vs growth style box.

At SPARX, we are fundamental-driven bottom-up investors. Our country exposure is a result of bottom-up stock picking. At the same time, we recognize country-specific risk and set our exposure limit to certain countries dynamically.

[i] Mr. Buffett on the Stock Market (Fortune, 1999) | Fortune

Important Disclaimer

This content has been prepared by SPARX Asset Management Co., Ltd. (SAM) for information purpose only. Certain information contains economic trends and performance, however, SAM does not warrant the accuracy or completeness of such information, and accept no liability whatsoever for any direct or consequential loss arising from any use of this content. The views and opinions contained herein are based on then-current beliefs of the authors and are subject to change without notice. Furthermore, it should not be assumed that past performance is an indication of future results.