Japan Equities: A Unique OpportunityJapan Equities: A Unique Opportunity. Nikko Asset Management Co., Ltd. May 2019. This material has been prepared and issued by Nikko Asset Management

This material must be read in conjunction with the “Important Information” statement on the last page and is not for redistribution.

FOR INFORMATION PURPOSES ONLY－NOT FOR REDISTRIBUTION

For Professional Investors

Japan Equities: A Unique Opportunity

Nikko Asset Management Co., Ltd.May 2019

This material has been prepared and issued by Nikko Asset Management Co., Ltd. (“Nikko AM”) for the purpose of explaining our Japanese economy and market conditions. As such, this is not material soliciting subscribers for a particular fund. All rights concerning the contents of this material are reserved by Nikko AM. The reproduction, reprinting or distribution of this material to any third party without prior consent is prohibited. This material has been prepared based upon information that we believe to be reliable, but we do not guarantee its accuracy or completeness. Graphs, figures and the like appearing in this material are past results and do not guarantee the results of investment in future. The information contained in this material is not a guarantee of future changes. This material must be read in conjunction with the “Important Information” statement on the last page and is not for redistribution.

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Japanese Stocks (TOPIX)US Stocks (S&P500)European Stocks (STOXX600)Asian Stocks ex. JP (MSCI Asia ex.JP)

80100120140160180200220240260280300320

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Japanese Stocks (TOPIX)US Stocks (S&P500)European Stocks (STOXX600)Asian Stocks ex. JP (MSCI Asia ex.JP)

Strong corporate profit and attractive valuation

Source: FactSet. As of March 31, 2019

(Indexed 1/2010=100)

【12-month Forward

Consensus EPS】

【12-month Forward P/E】

Abenomics

0.0

1.0

2.0

3.0

4.0

5.0

6.0(%)

Net Profit Ratio TSE1

Source : Toyo Keizai. As of March 2018

【Net profit ratio】

16.513.913.112.5

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Presenter

Presentation Notes

Forward EPS FactSet.xlsx　（長谷川さんから）


6%

7%

8%

9%

10%

FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 (E)

Revised Stewardship Code to accelerate governance reform

1. Effective Monitoring of Asset Managers by the Asset Owners

2. Development of Governance Framework and Management of Conflict of Interests at Asset Managers

3. Shareholder Engagement and Proxy Voting with Mid to Long-term Focus in Passive Investments

4. Enhancement of Public Disclosure of Institutional Investors Proxy Voting records

5. Self-evaluation and Public Disclosure of Stewardship Activities

【Core of the Revised Code】

In May 2017, three years after its introduction, Japan’s Stewardship Code was revised by the FSA

The aim of the revision is to enhance Japanese companies’ capital efficiency (ROE) and distribution to shareholders

Source: FactSet, Toyo Keizai, as of March 2019

【Trend in ROE】

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Presenter

Presentation Notes

ROE分布.xlsx（長谷川さん）


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50

60

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80

90

100

Firstday

5 10 15 20 25 30 35 40 45 50 55 60 65 70Koizumi Abe (before) Fukuda Aso

Hatoyama Kan Noda Abe

Stable political situation – foundation for future growth

Source: Nikko AM (based on data deemed reliable) as of March 2019

【Government Approval Ratings】

Politics to stay stable as long as Abe continues to spend his political capital on the economy rather than constitutional reform

【Voting Intention】

(Months)

(%)

4

(%)

0

10

20

30

40

50

60

Liberal Democratic Party Democratic Party for the PeopleKomeito Japan Innovation PartyJapanese Communist Party Social Democratic PartyThe Constitutional Democratic Party

Presenter

Presentation Notes

Government approval rating.xlsx 黄色い線を３０％の所に


Forget macro, “show me the money” corporate governance

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Structural corporate governance change drives profitability trend, not domestic GDP

Sources: Japan Ministry of Finance, Bloomberg

As at 1Q 2019


Example of Bank Consolidation

IBJFujiDKB

MitsubishiBank of Tokyo

Sanwa Tokai

SumitomoMitsui

DaiwaAsahiKyowaSaitama

Mizuho

Mitsubishi UFJ

Sumitomo Mitsui

Resona

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“Show me the money” corporate governance

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Dividend per TOPIX and the Payout Ratio surged in the last decade

Source: BloombergAs at 9 May 2019


Stocks very attractively valued

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12-month Forward PER Near Historic Low




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Dividend Yield at Historically High Spread vs Expected Dividend Yield




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12-Month Forward EPS should accelerate again, so Dividend growth should remain strong



Debunking demographics with technology

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Inverse correlation between population and corporate profits in Japan and Germany

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160

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CQ41986

CQ41989

CQ41992

CQ41995

CQ41998

CQ42001

CQ42004

CQ42007

CQ42010

CQ42013

billi

ons

peop

le (m

illio

ns)

Japan Working Age Population10

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100

53

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55

CQ22006

CQ22007

CQ22008

CQ22009

CQ22010

CQ22011

CQ22012

CQ22013

billi

ons

peop

le (m

illio

ns)

Germany Working Age Population

Germany Corporate Profit (USD, 3yr avg)

Sources: World Bank, MSCIAs at 31 December 2013


Japan vs. World Ex Japan MSCI, Total USD return

Stayed competitive vs. World (and greatly outperformed Europe) during the Abenomics era until the 2H18 slump. Likely to revert to the mean vs. the World, in our view

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As at 9 May 2019


Conclusions on Japan

Don’t worry about Japanese demographics and macro statistics. Global economic growth has a more important impact on profits.

Japan is unique globally due to the structural improvement in corporate governance, especially regarding dividend payouts.

The stock market’s valuations are very attractive and present a unique opportunity after their recent global underperformance.

The Yen is a key factor, but we continue to believe the USD will remain fairly stable.

Abe will very likely be PM for several more years and will never stop working for growth. Japan’s politics are uniquely stable among all major countries. His administration is implementing TPP reforms, especially in agriculture.

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IMPORTANT INFORMATION

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This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under such circumstances as may be permitted byapplicable laws. This document does not constitute investment advice or a personal recommendation and it does not consider in any way the suitability or appropriateness of thesubject matter for the individual circumstances of any recipient.

This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments or participate in any trading strategy.Moreover, the information in this material will not affect Nikko AM’s investment strategy in any way. The information and opinions in this document have been derived from orreached from sources believed in good faith to be reliable but have not been independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied,and accepts no responsibility or liability for the accuracy or completeness of this document. No reliance should be placed on any assumptions, forecasts, projections, estimates orprospects contained within this document. This document should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions stated in thisdocument may change without notice.

In any investment, past performance is neither an indication nor guarantee of future performance and a loss of capital may occur. Estimates of future performance are based onassumptions that may not be realised. Investors should be able to withstand the loss of any principal investment. The mention of individual stocks, sectors, regions or countries withinthis document does not imply a recommendation to buy or sell.

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All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended by Nikko AM is strictly prohibited.

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This document is communicated by Nikko Asset Management Europe Ltd, which is authorised and regulated in the United Kingdom by the FCA (122084). It is directed only at (a)investment professionals falling within article 19 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005, (as amended) (the Order) (b) certain high net worthentities within the meaning of article 49 of the Order and (c) persons to whom this document may otherwise lawfully be communicated (all such persons being referred to as relevantpersons) and is only available to such persons and any investment activity to which it relates will only be engaged in with such persons.

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Japan Equities: A Unique OpportunityJapan Equities: A Unique Opportunity. Nikko Asset Management Co., Ltd. May 2019. This material has been prepared and issued by Nikko Asset Management