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    1. JP Morgan Japanese Investment Trust is well placed to reap recovery rewards

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    JP Morgan Japanese Investment Trust is well placed to reap recovery rewards

    JPMorgan Japanese Investment Trust offers exposure to growth stocks and sectors in post-pandemic Japan.

    J.P. Morgan Investment Trust Team

    The future is looking brighter for Japan. It is recovering from the double trauma of recession1 and coronavirus. Consumer spending continues to pick up after 2019’s consumption tax hike hit GDP hard; the country’s handling of the pandemic has been relatively successful. There is good reason for optimism but investors must focus on themes with the greatest growth potential. JP Morgan Japanese Investment Trust portfolio manager Nicholas Weindling believes that while these themes will still play out over the next decade or longer, coronavirus has accelerated them. This offers real opportunities for the informed investor.

    IT update

    Coronavirus has accelerated changes in Japanese ways of working. Weindling, who like many Tokyo residents worked from home during the city’s lockdown, says that many Japanese companies are under-invested in the IT required for remote and flexible working, and are saddled with proprietary systems that are increasingly expensive to maintain. The trust looks well placed to profit from companies’ need for greater IT investment thanks to its position in OBIC, a highly profitable company which provides standardised systems and support for SMEs.

    The change to cashless

    Another trend that coronavirus has accelerated is the increase in cashless transactions. In Japan, 76% of transactions are in cash2 – versus a global average of 60% and just 10% in South Korea3 . The Japanese government had already committed to meeting the global average by 2025 but coronavirus-heightened hygiene concerns around handling money will hasten the change. Trust holding GMO Payment Gateway, the country’s largest cashless transaction processor, is in prime position to benefit.

    Commerce goes online

    Lockdown also set in motion a shift from brick-and-mortar spending to online transactions – in both B2C and B2B. Portfolio beneficiaries of ecommerce growth include Uniqlo owner Fast Retail, with its rapid online sales growth, especially outside of Japan, and in B2B, MonotaRO. The online supplier of office supplies and manufacturing products (including PPE) already has over a million customers. Its excellent sales growth during the crisis period, and investment in future growth, bodes well for the trust.

    New horizons for gaming

    Gaming is another sector reaping the rewards from the switch from physical to online purchasing, for game downloads are more profitable. Coupled with gaming’s popularity surge among families looking for lockdown diversions, this has translated well to the trust with its positions in companies such as Square Enix, Capcom and Nexon. The highest profile holding to benefit is Nintendo whose family-friendly ‘Animal Crossing: New Horizons’ was the global gaming smash hit during lockdown.

    Automation acceleration

    A major existing issue in Japan is its shrinking workforce. Alongside increased female participation, returning retirees, and (to a limited extent) the relaxation of immigration and work visa policies, automation and robotics is a key solution to the problem. It’s already a multi-year trend - for example, Fast Retail’s new Tokyo distribution centre requires only 10% of the staff needed to operate its previous facility. Coronavirus has accelerated the trend: as well as reducing labour costs and increasing efficiency, robotics also solves the manufacturers’ need to socially distance their workers. One company leveraging the automation revolution is Keyence, global number one manufacturer of factory production line sensors – and the trust’s largest position. Keyence boasts a competitor-beating operating margin of over 55% and maintained its robust performance during the recent slowdown.

    Retail tourism

    A highly visible effect of coronavirus on Japan has been the 99.9% drop in overseas tourists4 . Retail is one of the largest areas of spend by visitors from Asian countries, especially China. However, says Weindling: ‘The fact that tourists from these countries aren’t coming to Japan doesn’t make that much difference: they’ve developed loyalties to Japanese brands; now they’re simply buying these quality products back home.’ Brands such as functional skincare company Shiseido have a firm place in the trust as well as in consumer hearts.

    Reaping rewards

    The JPMorgan Japanese Investment Trust offers investors exposure to Japan’s most exciting growth themes. The trust’s stock selection and sector allocation have helped it perform strongly throughout Japan’s slowdown and position it well to reap the rewards of Japan’s recovery and beyond.

    JPMorgan Japanese Investment Trust plc >

    1 Source: MarketWatch. https://www.marketwatch.com/story/japans-economy-fell-to-recession-in-q1-2020-06-07.
    6 July 2020.
    2 Source: Nippon, 14 July, 2019. https://www.nippon.com/en/in-depth/d00492/the-state-of-cashless-payments-in-japan.html
    3 Source: Japan Times. https://www.japantimes.co.jp/news/2019/08/21/business/cash-king-aging-japan/
    4 Source: Bloomberg. 21st May 2020 https://www.bloomberg.com/news/articles/2020-05-20/visitors-to-japan-slump-99-9-as-3-million-tourists-become-3-000

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    On the Minds of Investors

    Drawing on the depth and breadth of their market and economic expertise, our global macro strategists offer insight into today's big investment themes to enable more confident portfolio decisions.

    Views on today’s key investment themes

    This is a marketing communication. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. The value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5J

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