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• While Japan is experiencing a third wave of COVID-19, it is faring better than the U.S. With a population that is ? of the U.S., new daily cases in Japan have risen to over 3,000.
• At an unprecedented speed and scale, the government has implemented stimulus plans amounting to almost 40% of Japan’s GDP, which helped shore up Japan’s economy.
• Japan’s unemployment rate is only at 3% due in large part to Japan’s “lifetime employment” practices. Rather than losing their jobs, many workers are accepting pay cuts.
• New Prime Minister Yoshihide Suga is a close ally of Shinzo Abe and has prioritized economic growth through tax, labor, and corporate governance reforms while pursuing his own initiatives such as zero carbon emissions by 2050.
• Japan is a member of the new Regional Comprehensive Economic Partnership trade deal, which also covers 1/3 of global GDP and will be beneficial in lowering tariffs and eliminating import duties.
• Japan’s manufacturing businesses are faring well due to demand recovery outside Japan, mainly China and the U.S., while domestic-oriented, non-manufacturing sectors faced a deeper slump.
• ESG is an important consideration in our research process, and as a United Nations PRI (Principles for Responsible Investing) signatory since 2018, we take this issue very seriously. The Fund has been a long-term owner of many ESG-positive businesses.
• The Hennessy Japan Fund is poised to take advantage of Japan’s manufacturing excellence, holding companies that manufacture industrial products, personal care goods, apparel, and medical devices.
• Japanese company valuations remain compelling. TOPIX currently trades at approximately 1.3× book value, lower than the U.S. and Europe.
• The current market may have priced in a full recovery over the next 12-18 months, so individual stock picking will be important. With an active share over 80%, the Fund’s performance will not necessarily mirror the overall market trend.