With a total combined market cap of US$6.7 trillion, Tokyo is in the top five largest stock markets globally.
For long-term investors, it makes sense to be diversified geographically when investing. This means we can avoid “home bias” or having too many of our assets in one single market.
With the Olympics set to kick off this Friday in Japan, and with international travel all but suspended, instead of travelling to the Games investors should consider purchasing Japanese stocks.
Japan is home to some of the world’s biggest companies that all of us are familiar with. Here are two such reliable blue-chip stocks that long-term investors can buy when first entering the Japan market.
Even if you’re not a gamer, you would have heard of the Sony Group Corp’s(TYO: 6758) (NYSE: SONY) flagship PlayStation console.
Yet what may surprise many individuals is that Sony is a lot more than just a gaming company. It has multiple divisions besides gaming that include music, pictures, and electronics products & solutions (EP&S).
Sony Music and Sony Pictures are both heavyweights in their own right in their respective niches but it’s still Sony’s gaming division which rules the roost.
In its most recent financial year (FY 2020) for the 12 months ending 31 March 2021, Sony reported an overall sales increase of 9% year-on-year to ¥9 trillion (US$81.9 billion) while operating income was up 15% year-on-year to ¥972 billion.
Yet its gaming division, known as “Game & Network Services” (G&NS) Segment, was the standout performer for very obvious reasons.
For FY 2020, G&NS saw a 34% year-on-year increase in sales to ¥2.66 trillion. Meanwhile, the segment’s operating income saw a 44% year-on-year jump to ¥342 billion (see below).
Sony’s G&NS Segment sales and operating income
Source: Sony FY 2020 earnings presentation
A lot of this was driven by the launch of the Sony PlayStation 5 and accompanying game software sales.
Although Sony forecasts a slowdown in revenue growth for the next fiscal year, forecasting it at 9% year-on-year, this forward guidance was made at the end of April – well before the Delta variant had become widespread.
The Tokyo-listed shares of Sony are up 4.5% so far in 2021 but have done better over the past year, notching up a 32% gain. Its five-year share price gain is more impressive, at 241%.
Just as Sony is synonymous with the PlayStation, Nintendo Inc (TYO: 7974) (OTC: NTDOY) tends to be known for the massively-popular Switch; a portable/at home hybrid gaming console.
Known in previous generations for its Super Nintendo, N64, GameCube and then the Wii, Nintendo has continued to innovate to meet consumers’ changing tastes.
Everyone will remember the Pokemon Go craze of a few years ago and Nintendo hasn’t let up on producing more hit games and franchises.
More recently, Nintendo’s Switch has become a hit across all ages – primarily for its appeal as a console for more casual gamers (versus the more serious gamers that have PlayStations and Xboxes).
In its latest fiscal year 2020, for the 12 months ending 31 March 2021, Nintendo sold 28.8 million Switch units – up 37.7% year-on-year.
It also brought the total number of Switch units sold – since its release in early 2017 – to nearly 85 million.
Hit titles and financials
Unsurprisingly, that has resulted in some stellar earnings numbers. For FY 2020, Nintendo saw sales up 34% year-on-year to ¥1.76 trillion while operating profit soared 82% year-on-year to ¥640 billion.
What makes Nintendo such a force is the fact that it also has a stable of fan-favourite games that include hits such as Animal Crossing: New Horizons and Mario Kart 8 Deluxe.
Nintendo, like many other Japanese companies, are also starting to reward its shareholders more by returning capital via dividends.
In its latest earnings, Nintendo managed to more than double its full-year dividend per share (DPS) to ¥2,220 which means investors can receive a dividend yield of a respectable 3.7% given its latest share price of around ¥60,000.
So far in 2021, Nintendo shares are down 8.7% but over the past year they’re up 25.5%. Meanwhile, over the past five years they’ve delivered a robust return of 111%.
Buy games if you can’t attend the Games
For those of us who want a taste of Japan but can’t travel to Japan to enjoy the spectacle of the Olympics in person then buying some Japanese gaming stocks also works out well.
Both Sony and Nintendo are gaming pioneers and are unlikely to go anywhere in the next few decades.
Instead, riding a strong structural wave of more casual gaming (and even new verticals within gaming), the two Japanese leaders could be even more successful in the years to come.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.