PSA Japan Technology Sector Strategy – Japan's "Sweet Sixteen"

Japan Technology Sector Strategy – Japan's "Sweet Sixteen"
Although Japan doesn’t have an equivalent to Wall Street’s FANG stocks, it is starting to develop a group of winners of its own: the tech hardware sector.

Key Points

• Highlighting Japan’s technology sector “Sweet Sixteen”.
• Despite excellent performance, the sector is still not expensive.
• There are strong cyclical reasons for this group to perform…
• …added to which there is the secular upswing impacting the semiconductor sector…
• … as Japan is very exposed to associated industries, be these supply chain names on both the equipment and materials side, or else parallel businesses, such as electronic components.
• Japanese technology plays have benefited from a further secular change: the shift towards automation.
• The sensor+AI element takes the automation story out of the industrial arena and puts it into the consumer arena.
• This in turn gets you into the 5G / IoT / M2M story, which ultimately takes us back to the semiconductor cycle, creating a virtuous circle.
• We risk overshooting the “Goldilocks” zone sometime in 2018, and moving to a risk-on scenario.
• Here are recommendations for weightings in the sector, highlighting those stocks in the “Sweet Sixteen” that we like. We suggest building positions in some of the more volume-oriented plays (both large and small cap).