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Investors Should Wake Up To Japan’s Robotic Future

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Due largely to unfavourable demographics, few countries have had more obituaries written about it than Japan. In the hierarchy of economic geriatrics, Japan stands at the apex, and for good reason.

Out of a population of roughly 127m people, more than a quarter are 65 years old or older. The number of births hit the lowest level on record in 2016, which hardly bodes well for the future.

Indeed, according to estimates from Japan’s health ministry, the nation’s population is on course to shrink by one-third by 2065. By then, nearly 40 per cent of the population will be 65 years plus.

Yet while well versed in Japanese demographics, investors are less acquainted with the nation’s response to this challenge. Japan, simply put, is in the midst of a robotics revolution that will transform nearly every aspect of society and be replicated, in some shape or form, around the world given the ageing populations of Europe, the US and even China.

Far from lagging behind, Japan is leading the way in a world confronting declining birth rates and ageing societies, and the knock-on effects of a dwindling labour force, acute labour shortages and soaring costs for elderly care.

Out of necessity, Japan has been pushing on the robotics frontier for years. As a result, the proliferation and embrace of robots goes well beyond the Japanese factory floor to include schools, hospitals, nursing homes, airports, train stations and even temples.

“Robear” is a fixture for Japanese nursing homes, and is described as a “strong robot with a gentle touch”, capable of lifting the elderly to and from the bathroom, or gently placing them in wheelchairs. “Paro” is a miniature robotic seal that engages the elderly in an effort to ward off dementia.

In day care centres, “Vevo”, a bear-shaped robot, greets and identifies children each day, and monitors the children’s heart rates and body movements while napping. Vevo has been critical in filling job vacancies of nursery schoolteachers in Japan where, nationally, the jobs-to-applicants ratio stood at 2.17 in July.

It goes on. Some robotic tasks seem frivolous and are in the early stages of development, but no other country in the world has strategically embraced robots as much, with the state’s revised Japan Revitalization Strategy seeking to achieve “a new industrial revolution driven by robots”.

Japan, in other words, has stolen a march on the future, with both Europe and the US increasingly confronting the same problems. It has been dealing with it for decades: rapidly ageing populations, a spiralling number of elderly and shrinking labour forces.

In the US, for instance, the labour force participation rate remains stuck at roughly 63 per cent, while the number of unfilled jobs in the nation now exceeds 6m. Compounding matters is America’s ageing workforce: the average age of a nurse is now nearly 50. For a construction worker, it is just over 40.

It is a similar story across ageing Europe, as well as China, where the mainland’s labour force has peaked and the number of elderly has soared over the past decade. Accordingly, the use of robots in China, as well as Europe and the US, has accelerated over the past few years.

 

 

”With Japan at the forefront, robotics remains one of our key investment themes. Even though the Global Robotics and Automation index has soared more than 400 per cent since the beginning of 2009 (versus 178 per cent returns from the S&P 500 and 114 per cent returns from the MSCI All Country World index), the relative outperformance, underpinned by powerful secular global demand, is expected to continue.”  

The best way to play this theme is two-fold: by either directly owning leading Japanese robotics manufacturers and service providers, or through the ROBO ETF, with Japanese companies comprising roughly 30 per cent of the total market capitalisation.

More broadly, with the economy expanding at its fastest pace in over two years in the second quarter, and with activity related to the 2020 Olympic Games ramping up, now is the time for investors to raise their allocations to robot-leading Japan.

As the revolution under way in Japan becomes more transparent, demand/prices for Japanese assets will rise.

In the end, Japan is being resurrected by the cutting-edge adoption of robots. In this light Japan is the future for investors, not the past.

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