Big Bags and Tiny TVs on Trains Spur Bull Case in Japan Stocks

(Bloomberg) -- If there’s one thing that screams “tourist” on the Tokyo-to-Osaka bullet train, it’s a giant bag. Nicholas Weindling saw enough of them to form a bull case that paid off on Japanese consumer stocks.

Here’s the argument. If you’re a local going from city to city, you probably have your things sent ahead -- via a delivery service that everyone in Japan knows about. Weindling, a fund manager who came to Tokyo with JPMorgan Asset Management almost 12 years ago, said the sight of foreigners lugging luggage was a sign as far back as 2014 that tourism was rising.

He modeled his investment plan accordingly.

“In my career, it was the most visibly obvious thing that I’ve seen,” he said in an interview in Singapore. “You can just see it before your eyes that this is something different.”

Big Bags and Tiny TVs on Trains Spur Bull Case in Japan Stocks

In fact, Japanese brands have seen sales soar as the number of tourists grew from 13.4 million in 2014 to 28.7 million last year. Shares of cosmetic giant Shiseido Co., the second largest holding in Weindling’s Japan equity fund, have almost quadrupled since then. Now the money manager’s train ride has led him to his next idea -- mobile TV streaming.

“If you look in a train in Japan, overwhelmingly, people are just staring at this small screen now,” Weindling, who helps manage about $6 billion in Japanese equities said. “That’s where all people’s time is shifting to and that’s why we have a very significant part of the portfolio in internet stocks.”

He likes CyberAgent Inc., a company that owns a free-to-view internet television service with over 25 channels and one of the largest online advertising businesses in Japan. A 72-hour marathon screening of Japanese boy band SMAP recorded over 70 million views last November, when the stock rose 9.4 percent.

“That’s a lot of people. They can pull people in,” Weindling said.

Internet stocks that rank among the top 10 largest holdings of his fund as of Feb. 28 also include M3 Inc., a company that runs a medical information website for doctors, and Recruit Holdings Co., which owns the employment-related search engine, Indeed Inc. Japan is still "some years behind" China, Western Europe and the U.S. when it comes to internet penetration, Weindling said.

On The Ground

The fund manager, whose Japan equity fund has outperformed 95 percent of peers in the past year, says living in Tokyo is his biggest edge in picking stocks that will perform in the long term because he can detect such trends “on the ground.”

“The lack of sell-side coverage in Japan is incredible and certainly not increasing -- 50 percent of companies still have zero or one analyst,” he said. “So that is the big opportunity for us.”

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