By Ian McConnell
THE coronavirus pandemic is “likely to usher in a raft of structural changes in the way Japan does business”, the £761 million Baillie Gifford Shin Nippon has declared.
The investment trust highlighted its view that Japanese companies have been “notoriously slow” in adopting technology. It flagged its belief that smaller companies in Japan, on which its portfolio is focused, would benefit from the shake-up in this “state of affairs” amid the pandemic. The trust expects the trend towards greater use of online services to continue.
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In its report on the trust’s results, Baillie Gifford declares: “Historically, Japanese businesses have been notoriously slow in adopting modern business practices, including the use of technology. The discerning nature of Japanese consumers who value personal contact and high standards of service has insulated brick and mortar retailers from online competition.
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“This has resulted in slower e-commerce penetration in Japan compared to other developed markets. This state of affairs has been shaken up by the pandemic as restrictions to avoid the spread of the virus have forced consumers and companies to adapt. Smaller companies have benefited significantly from these trends as they have generally been at the vanguard of change in Japan.”
It adds: “Both businesses and consumers are realising the immense value that technology and online services bring to the table, and therefore we think many of these trends are likely to persist over the long-term. This should provide very attractive growth opportunities for smaller companies in Japan.”
In the year to January 31, Baillie Gifford Shin Nippon recorded a total return on net asset value of 34 per cent. This was well ahead of the 5.3% total return on its comparative index, the MSCI Japan Small Cap Index, in sterling terms.
Baillie Gifford noted online legal portal Bengo4.com had been the “top positive contributor to performance, with its shares more than doubling over the past year”.
It noted the Japanese company’s digital contracts business, CloudSign, “grew at a rapid pace with sales up nearly three-fold”.
Baillie Gifford added: “Both public and private sector companies in Japan have gradually been shifting from paper-based contracts to digital contracts. The pandemic has accelerated this shift as employees forced to work from home have been unable to create and certify important documents that have traditionally needed an official seal called a hanko. This shift appears structural in nature and offers CloudSign an attractive long-term growth opportunity.”
Online food delivery company Demae-Can was also among the top performers in the portfolio. And Baillie Gifford Shin Nippon highlighted the strong performance of online drug marketing platform M3.
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