Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Thematic (Sector/Industry)

<h2>External Demand Still the Best Path to Drive Winners in the Japanese Market</h2><p>Despite the recent uptick in domestic economic activity, we doubt domestically driven growth opportunities are sustainable. Given our view that structural reform in Japan will be slow, we still prefer companies with global expansion opportunities. Recent results from some Japanese companies point to strong demand from Asia and particularly China, especially for higher value-added goods. We think this trend will continue over at least the next five years, led by demographic changes in China that should sustain its drive to mechanize, as well as rising wealth in Asia to boost inbound tourism spending in Japan and on Japanese goods externally. We believe the Tokyo Olympics in 2020 should continue to build the Japanese brand, and we expect the introduction of casinos thereafter to sustain tourism.</p><h2>Firms With Moats Will Benefit Disproportionately as Homegrown Competition Remains a Threat</h2><p>Not all Japanese exporters will benefit. No-moat consumer electronics companies have not seen their emerging Asian sales grow in the same manner in the past seven years as others eat into their market shares. As a result, we prefer to stick to local leaders with strong intangibles that can be exported to other markets, as well as those that benefit from switching costs.</p><h2>Key Takeaways</h2><ul><li>"Made in Japan" brands should still resonate with Asian consumers looking for high-quality and safe-to-consume products. Japan's tourism push will build regional awareness of these brands.</li><li>Integrated casino resorts look to become a reality following the Tokyo Olympics, and Mitsubishi Estate should benefit.</li><li>The aging labor force in both Japan and China will support strong growth for manufacturing mechanization. We remain keen on wide-moat <a href="https://www.smartkarma.com/entities/752" target="_blank" data-smartkarma-citation="entities:752:1">Fanuc Corp (6954 JP)</a> with an appropriate margin of safety. <a href="https://www.smartkarma.com/entities/7245" target="_blank" data-smartkarma-citation="entities:7245:1">Nidec Corp (6594 JP)</a>'s widening product mix is underappreciated.</li></ul><div class="content-remarks"><p>Companies mentioned: <a href="https://www.smartkarma.com/entities/752" target="_blank" data-smartkarma-citation="entities:752:1">Fanuc Corp (6954 JP)</a> | <a href="https://www.smartkarma.com/entities/12933" target="_blank" data-smartkarma-citation="entities:12933:1">Kao Corp (4452 JP)</a> | <a href="https://www.smartkarma.com/entities/15996" target="_blank" data-smartkarma-citation="entities:15996:1">Meiji Holdings Co Ltd (2269 JP)</a> | <a href="https://www.smartkarma.com/entities/566" target="_blank" data-smartkarma-citation="entities:566:1">Mitsubishi Estate Co Ltd (8802 JP)</a> | <a href="https://www.smartkarma.com/entities/7245" target="_blank" data-smartkarma-citation="entities:7245:1">Nidec Corp (6594 JP)</a> | <a href="https://www.smartkarma.com/entities/5718" target="_blank" data-smartkarma-citation="entities:5718:1">Shiseido Co Ltd (4911 JP)</a> | <a href="https://www.smartkarma.com/entities/2458" target="_blank" data-smartkarma-citation="entities:2458:1">Yaskawa Electric Corp (6506 JP)</a>.</p></div><p><em>Analysts: Lorraine Tan, CFA and Shanshan Wei, CFA</em></p>

External Demand Still the Best Path to Drive Winners in the Japanese MarketDespite the recent uptick in domestic economic activity, we doubt domestically driven growth opportunities are sustainable. Given our view that structural reform in Japan will be slow, we still prefer companies with global expansion opportunities. Recent results from some Japanese companies point to strong demand from Asia and particularly China, especially for higher value-added goods. We think this trend will continue over at least the next five years, led by demographic changes in China that should sustain its drive to mechanize, as well as rising wealth in Asia to boost inbound tourism spending in Japan and on Japanese goods externally. We believe the Tokyo Olympics in 2020 should continue to build the Japanese brand, and we expect the introduction of casinos thereafter to sustain tourism.Firms With Moats Will Benefit Disproportionately as Homegrown Competition Remains a ThreatNot all Japanese exporters will benefit. No-moat consumer electronics companies have not seen their emerging Asian sales grow in the same manner in the past seven years as others eat into their market shares. As a result, we prefer to stick to local leaders with strong intangibles that can be exported to other markets, as well as those that benefit from switching costs.Key Takeaways"Made in Japan" brands should still resonate with Asian consumers looking for high-quality and safe-to-consume products. Japan's tourism push will build regional awareness of these brands.Integrated casino resorts look to become a reality following the Tokyo Olympics, and Mitsubishi Estate should benefit.The aging labor force in both Japan and China will support strong growth for manufacturing mechanization. We remain keen on wide-moat Fanuc Corp (6954 JP) with an appropriate margin of safety. Nidec Corp (6594 JP)'s widening product mix is underappreciated.Companies mentioned: Fanuc Corp (6954 JP) | Kao Corp (4452 JP) | Meiji Holdings Co Ltd (2269 JP) | Mitsubishi Estate Co Ltd (8802 JP) | Nidec Corp (6594 JP) | Shiseido Co Ltd (4911 JP) | Yaskawa Electric Corp (6506 JP).Analysts: Lorraine Tan, CFA and Shanshan Wei, CFA

Japan Equity Opportunities: High-Quality Businesses Will Benefit from Sustainable Growth Drivers