abrdn Closed-End Funds
FOR US INVESTORS ONLY
Important Information:
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results.International investing entails special risk considerations, including currency fluctuations, lower liquidity, economic and political risks, and differences in accounting methods; these risks are generally heightened for emerging market investments.Concentrating investments in the specific regions subjects the Fund to more volatility and greater risk of loss than geographically diverse funds.Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).The Fund’s use of leverage exposes the Fund to additional risks, including the risk that the costs of leverage could exceed the income earned by the Fund on the proceeds of such leverage. Additionally, in the event of a general market decline in the value of the Fund’s assets, the effect of that decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.Your portfolio may not have the same asset class weightings. Asset class weightings are subject to change.Diversification does not ensure a profit or protect against a loss in a declining market.Some of the information in this document may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations, as he/she may consider necessary or appropriate for the purpose of such assessment.Any opinion or estimate contained in this recording is made on a general basis and is not to be relied on by the reader as advice. Neither ABRDNnor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.
abrdn Closed-End Funds
JEQ Fund Update - September 2023
In this episode, we focus on the Japanese equity markets with a manager of the abrdn Japan Equity Fund, Inc., ticker JEQ.
Paul Blane: Hello everyone and welcome to the latest in the abrdn Closed-end Fund podcast series, where we catch up with our portfolio managers from around the globe to gain some perspective on the state of the markets and the abrdn closed-end funds. I'm your host Paul Blane, Senior Director with the National Accounts Team, and today we're focusing on the abrdn Japan Equity Fund (ticker - JEQ). It's my pleasure to welcome Chern Yeh Kwok, the Deputy Head of Equities Asia PAC and the Head of Equities Japan. Chern, thanks for being here. It's great to see you.
Chern Yeh Kwok: Thank you, it's good to be with you.
Paul: So, if you wouldn't mind, could we start with an overview of what you feel has been driving the Japan equity markets?
00:45
Chern: Sure thing. Well, if you look at the Japanese market this year, it's up 23% in local currency terms, as of the end of August. Now in US dollar terms, that's a pretty respectable 11%. And if you look across Asia, it's a pretty good return compared to most markets, especially China. So, what is driven the numbers, what has driven the market? Quite a few things. The first thing is that Japan has had a better domestic outlook compared to quite a number of countries, including China and various parts of Asia - essentially, the decline in raw material prices from earlier this year and also the easing of supply chains across the world has helped to keep inflation in check. Okay. The second thing is that there’s improving domestic demand in areas linked to inbound tourism. Also, the Japanese equities market is unique in terms of regulators trying to raise valuations. And last but not least, Japan is seen as a country with much lower political risk compared to elsewhere, especially in China. Okay. And this, of course, comparing it to other Asian markets. So, you know, put all of these things together - relatively lower political risk, better domestic outlook, you have improving conditions in terms of costs falling, you know, or at least being kept in check, and that leads to a lot more interest in what's going on in the Japanese market. And let's not forget, an important pillar to this is the continued improvement in shareholder returns in Japan.
02:33
Paul: If we could get specific to the fund for just a second, would you please share the overall strategy of JEQ, the abrdn Japan Equity Fund?
02:43
Chern: Sure. Our investment philosophy focuses on good quality companies. Companies that have sustainable business models, good management teams, and awareness of ESG - especially governance, which has been an issue in Japan. And of course, you know, if all these things make sense, and if valuation makes sense, it becomes an investment within this fund. So, with JEQ we implement an all-cap strategy, whereby we look for the best ideas across the market cap range and size these positions according to where we see opportunities. So, we in Japan, just to provide some perspective, we have a very deep market of more than 3000 listed companies, with many varied companies across sectors. And many of which have been around for a long time, and they have strong balance sheets, an improving focus on returns and also an improving awareness of shareholder rights. Now, I emphasise this last point because it has, and I find it's very important that investors understand this because it has been an issue for many investors over many years in Japan, this governance has gradually been taking a turn for the better in recent years.
03:58
Paul: Chern, so in terms of sectors that you're investing in, or perhaps not investing in, where are you finding opportunities that you feel are most relevant to JEQ?
04:11
Chern: We're finding opportunities across quite a few sectors, but we tend to look at it in a slightly different way. So, what we do is we try to categorise the companies that we find into three broad themes, to make it more bitesized. Okay. And those three areas are innovation, digitization, and what we call Made-in-Japan. Okay, within innovation, I think what we can find is that we find companies that unique technologies, whether it is in it as pharmaceutical type modalities, or in auto electrification, or perhaps there's a product that is unique in helping perhaps semiconductor production companies to more efficiently produce semiconductors. For digitization, we can find companies that are involved with, obviously, the digitization of the world. But this is especially an issue in Japan, where many companies lack the adoption of digitization relative to companies in more developed economies. So, we can find IT companies that help Japanese companies to adapt to a more software driven world, or to use technology to say, find leads or to improve that efficiency - find leads for driving sales, to improve the efficiency of their advertising, you know, when they shift more of the advertising online - companies like that that help Japanese companies adapt to this to a more software driven world. So, last but not least, Made-in-Japan. And what we mean by that is companies with the Made-in-Japan stamp of approval, right, and we know that companies that produce goods in Japan, or at least, you know, have that Japanese brand on them, they tend to be pretty high quality. And they tend to be aspirational products for, say, many countries across Asia. Right? So, we have companies that sell consumer products, say something as basic as paint. You know, and we know that, you know, as, as these economies across Asia grow, that demand for these products will rise. And Japan has gone, of course, from a less developed country, many, many years ago, decades ago to where it is today. And you know, these companies have the product range, have the technology to follow along with the improvement in say, a GDP per capita or the rise of any of these countries, you know, and the improvement, or the desirability of these products, you know, will come over time.
07:00
Paul: Chern, thank you for that. So, my final question for you in two parts. If you would, share your thoughts on why investors listening today should consider allocating to the equity markets in Japan. Part two of the question, where appropriate, allocating to the abrdn Japan Equity Fund.
07:19
Chern: There are a few drivers for the Japanese market when we look ahead. First point is that let’s not forget that Japan eased COVID related restrictions later than other parts of the world. Okay, what this means is that Japan will see a continued resurgence of inbound tourism. And also, they will see continued decline in costs for logistics, for supply chains that have been affected because of COVID related restrictions over the last two years or so. Okay, and that includes importing products from China, or other raw materials, parts and components from other parts of the world. Right. So, that will help Japanese companies do better this year. The second point is that lower raw material prices will help Japanese companies as well, in addition to Japan moving away from a deflationary mindset that has been assisting in Japan for many years. Okay. So, costs are falling while Japanese companies are gradually able to raise prices - that leads to better margins. The third thing that I would add is that, that there will be continued improvement in shareholder returns. Okay. Earlier this year, the regulators in Japan have come out and said that companies trading at low valuations need to improve the ROE or, if not, there'll be demoted within the Tokyo Stock Exchange. Now many companies have realised that okay, you know, that they need to improve their returns, and what that means is make use of a capital that they have on their balance sheets to do share buybacks to improve their returns to shareholders, to then raise the ROE to get regulators, especially the Tokyo Stock Exchange, to essentially get them off their backs. Okay. And many companies have started to do this. We believe there's more that can be done. So again, easing of COVID related restrictions, leading to a better outlook and lower raw material prices with the end of a deflationary mindset in Japan helping to improve margins, and third, continued improvement in shareholder returns that would drive improved ROEs. Okay, now to your second question, Paul on why JEQ represents a good opportunity for investors. Again, you know, we believe that our investment philosophy helps our investors to sift through many companies that you see in Japan to get the best opportunities. And what we mean by the best opportunities, means good businesses, good companies, companies that have sustainable business models, good management teams and awareness, or rather increasing awareness, of shareholder returns. Right. We believe that that helps to drive the share prices of companies over time and will be rewarding for investors in JEQ.
10:27
Paul: Well, Chern, it's been great speaking with you today. We appreciate you sharing your time and your insights.
10:33
Chern: Well, thank you very much for your interest, Paul.
10:36
Paul: So, for those interested in learning more about the abrdn Japan Equity Fund (ticker - JEQ), please visit us at abrdn.com, that's abrdn.com. You can call us at 800-522-5465 or email investor.relations@abrdn.com Chern, thanks again.
The information contained herein is current at the time of distribution, intended to be of general interest only and does not constitute legal or tax advice. abrdn does not warrant the accuracy, adequacy or completeness of the information and materials contained in this document and expressly disclaims liability for errors or omissions in such information and materials. abrdn reserves the right to make changes and corrections to its opinions expressed in this document at any time, without notice.
Some of the information in this document may contain projections or other forward-looking statements regarding future events or future financial performance of countries, markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make his/her own assessment of the relevance, accuracy and adequacy of the information contained in this document, and make such independent investigations as he/she may consider necessary or appropriate for the purpose of such assessment.
Any opinion or estimate contained in this document is made on a general basis and is not to be relied on by the reader as advice. Neither abrdn nor any of its agents have given any consideration to nor have they made any investigation of the investment objectives, financial situation or particular need of the reader, any specific person or group of persons. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any person or group of persons acting on any information, opinion or estimate contained in this document.