Undiscovered Japan – robots, demography and a ‘virtual world’ for seniors

By Robert Swift

This piece is on Japan. It covers Japanese demography, a much misunderstood influence on GDP, robotics, a labour saving device or a threat to everyone’s livelihood, and technology which is typically adopted by the young but has a much bigger wealthier market if the elderly were to “get on board”. We will stay focused and address only a couple of trends in Japan and technology you can use to make money!

The URL below will take you to a video clip from the Nikkei news company. Please click and watch – it takes 3 minutes or so. Nikkei is a Japanese media business which owns the Financial Times of London, the Nikkei, the world’s largest circulation business newspaper, and various stakes in Japanese TV broadcasting companies. It also calculates the Nikkei 225 and Nikkei 300 indices which you may use to follow Japanese share prices.

http://undiscovered-japan.ft.com/articles/automation-and-ageing/

Fascinating? We think so and it strikes us that robotics is a useful tool and not to be feared or rejected.

Japanese demography is aging and the workforce shrinking. Such a pattern is not conducive to GDP growth but it doesn’t matter from an investor’s perspective. On a per head of population basis Japan has outperformed Germany a little and most definitely the USA, the UK and Australia over the last 20 years. In other words its citizens are more productive and getting wealthier even though the total pie is not growing that fast. Think about it. Australian working age population has grown about 2% p.a. for many years and general price increases (ignoring property) have averaged about the same. These two together make 4% p.a. and account for nearly all of the annual nominal GDP growth p.a. in Australia, leaving very little real improvement in living standards per head of population. This explains both the frustration of the average family here and the RBA which correctly worries about a lack of productivity growth.

Japan is a better performing economy than Australia. This is not the point we want to make here. What we do want to emphasise is that aging demography is feared but shouldn’t be. It may result in lower nominal GDP numbers but the spending power per person may remain strong and the spending patterns change and it is that change that provides the new investment opportunity. Medical care, aging and robotics in Japan looks one such trend.

“Japan ranks as the third biggest medical device market after the United States and the European Union, on track to expand even more with the percentage of seniors (65+ years) going from 24% in 2012 to 40% in 2050”. (Source: Maine International Trade Center)

It also struck us that a ‘virtual’ interaction like we see on the video is not so different with the ‘virtual’ interactions we all witness with our children’s “social” lives. Our children will have “friends” on Facebook or gaming sites, they have never, and may never, meet! How different is that from having a robot help folks exercise, provide comfort and company by responding to touch or voice, or even cleaning bed pans? Not much if at all. Consequently we see no moral or ethical barriers to widespread adoption in Japan and ultimately, elsewhere.

This also reminds us that Japan was a technology innovator and although Japanese technology may not grab the headlines like USA technology which tends to be more software and advertising focused, if we do see a return to more acceptable levels of public and private sector capital investment, then Japanese companies are well placed. We are reminded of this technological prowess by the current coverage of the sad demise of Toshiba which is facing a breakup after poor acquisitions and some business cultural failings (a common Japanese problem) but which at one time was the global leader in memory chip technology.

It also shows us that Japan is wealthy and is able to provide dignity to its elderly. Analysts focus on Japan’s gross debt but this is misleading since it is also a very significant creditor nation having had years of current account surpluses to build a very strong Net Foreign Assets (NFA) position. Anyone care to think what the UK or Australian NFA position looks like?

Japan may not be leading the way in the use of robotics but it is up there and many of its companies will be successful internationally. The High Conviction Strategy recently acquired a position in Hitachi High-Tech and we are currently evaluating SMC, Fanuc, Omron, Keyence, JTEKT and Terumo. There is a rich seam to be mined if the price is right.

To conclude we emphasise that Japan is a market rich in stock opportunities but is surrounded by misconceptions of its economic performance.

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