TOKYO -- Though the yen's recent appreciation is sparking jitters about profits at Japanese exporters, electronics companies that have a niche they can use to weather headwinds are drawing foreign investors.
"Just because the yen is strengthening doesn't mean we need to sell shares right away," Keita Kubota of Aberdeen Asset Management said firmly. Kubota stressed that businesses with expertise in certain fields will beat the competition in the medium to long term. He is considering updating his portfolio, incorporating growth stocks.
Overseas investors already are picking up growth companies such as Omron. BlackRock Japan increased its holdings of the medical device manufacturer to 7.74% by mid-May, up a little over 1 percentage point. The money manager not only likes Omron's high return on equity, which surpasses 10%, but also is hopeful that overseas sales of devices for asthma patients will grow. The stock advanced 7% over the past month despite the broader market's decline.
Capital Research and Management has raised its investment in Sony to 6.85%. Each 1 yen appreciation against the euro eats into the electronics giant's yearly operating profit by some 5.5 billion yen ($52.8 million). But the company enjoys strength in video games and smartphone image sensors, for which it boasts the world's largest market share. Sony expects higher group operating profit this fiscal year, even though results will be hurt by the Kumamoto earthquakes in April.
Foreign funds also are favoring W-Scope, which boasts a large market share for battery parts used in Chinese-built electric vehicles, as well as automobile battery developer Hitachi Maxell and Topcon, a producer of ophthalmic equipment for North America.
Given their competitiveness and growth potential, "many [of these companies] have been oversold below the levels they should be valued at," said Fumio Matsumoto, fund manager at Dalton Capital (Japan).
The strong yen is still bad news for these companies. Exporters' earnings will slow further if the yen remains at the 104 level to the dollar and the 117 range to the euro. Though exporters gained ground Friday, companies such as Honda Motor, Hitachi and Mazda Motor have slid over 8% during the past month, falling more steeply than the Nikkei benchmark's decline of slightly over 6%.
Yet Honda and Nissan Motor have enhanced their resistance to foreign exchange fluctuations as they updated production and purchase systems. As long as the yen stays above 100 to the greenback, there is no need to worry, one automobile official said.