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Value is lurking in Japanese smaller companies

The lack of Japanese smaller companies specialists makes the sector ripe for finding undervalued growth, according to Axa Framlington fund manager Chisako Hardie.

Axa Framlington’s Japanese smaller companies fund launched last week and Edinburgh-based Hardie believes the Japanese economy is in a strong position.

She says 3,000 of the 3,500 stocks listed on the Japanese stock exchange are small caps and the lack of sector specialists means many are under-researched and deliver significant outperformance.

Hardie says she is using outsourcing as a theme. She says in the 1990s many big Japanese companies diversified but when the markets fell, the big companies refocused on core assets and outsourced non-essential and back-office business so several small companies are increasingly being able to pick up this outsourced business and the service sector in particular has thrived.

Hardie believes the country is benefiting from a shift away by executives from established companies to create more entrepreneurial start-ups and this more motivated work-force is helping to drive economic growth.

She says: “In the 1990s. the buzzword was diversification. When the bubble burst, people had to talk about efficiency and focused on core assets. The trend in outsourcing has created many opportunities for smaller firms.

“The technology sector has benefited from ex-engineers from companies such as Hitachi and Toshiba setting up their own businesses, although any sector weighting in the fund will be the result of bottom-up stockpicking.”


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