20 Japanese Stocks Preparing for the Inevitable “Ukraine Shock

There is a saying in the stock market, “When the shot rings, buy. In fact, on February 24, when Russia’s invasion of Ukraine began, the New York Dow Jones Industrial Average and the Nikkei Stock Average showed an upward trend.

However, there are still many unreadable aspects of the future, such as President Putin’s unfathomable intentions and the future involvement of the U.S. and China, and it is difficult to know to what extent the rule of thumb used so far will hold true. If the war spreads further, the Japanese economy may be swallowed up by the “Ukraine shock” in a roundabout way. What kind of Japanese stocks are the best to target in this unstable global market? Let’s hear what investment professionals have to say.

The first “contingency stocks” mentioned were defense-related companies that manufacture fighter jets and submarines.

The first names mentioned as “contingency stocks” were defense-related companies that manufacture fighter jets, submarines, and other equipment. General heavy equipment manufacturers such as Mitsubishi Heavy Industries, which manufactures fighter jets and next-generation mine detectors, and Kawasaki Heavy Industries, which is involved in submarines, anti-tank guided missiles, and other weapons, are likely to be among those being bought. IHI, with its strength in space-related technologies, is another attractive stock,” says Market Bank representative Norifumi Okayama.

As fears of war spread, the risk of cyberattacks also becomes apparent. The international hacker group Anonymous announced a statement that it had launched a cyber attack on a Russian government website, and on March 1, a parts manufacturer that is a business partner of Toyota Motor Corporation suffered a cyber attack that shut down all of its plants in Japan. In this connection, stock analyst Kazuyuki Suzuki recommends the following stocks.

The Ministry of Defense is planning to form a “Cyber Defense Force” in March this year, and government agencies and major companies are likely to allocate more budgets to the field of cyber security in the future. In this trend, companies such as NTT Data and FFRI Security will attract a lot of attention. I think it is a good idea. NEC, which has strong relationships with government agencies and local governments, is also a leading stock.

How to avoid panic selling?

Kenichi Hirano, president of K-Asset, mentioned a certain venture company as a target stock for cyber-related companies.

“The Geolocation Technology (Geolocation Technology). Geolocation Technology is a one-of-a-kind company that develops business using a database tied to Internet IP addresses, and is expanding its business with the police and other government agencies. If a cyber attack were to occur, IP addresses would be used to identify the attacker and narrow down the country or region. Material stocks like this company can be expected to rise in value at the right time when the stock market turns up and becomes a hot topic of conversation.”

Not limited to military purposes, drones are attracting increasing attention in contingencies in terms of infrastructure development and information management. Economic journalist Hideki Wajima says the following.

In the global drone market, Chinese company DJI holds more than 70% of the market share, but from the perspective of military defense, the trend toward in-house production will accelerate. ACSL is one of the few listed companies in the world that specializes in drones. The ban on blind flights is expected to be lifted this year or next, enabling surveying and infrastructure inspections in areas that are not easily accessible to the human eye. I believe this will greatly expand the drone market in Japan.

The worsening situation in Ukraine is causing food raw material prices to skyrocket. Oil prices have also skyrocketed due to additional sanctions against Russia, which has hit our household budgets. Even if the easing of tensions between the two countries were to be brought about, it is difficult to imagine prices returning to normal any time soon. Market advisor Hideo Amano offers the following insights on which companies to keep an eye on under these circumstances.

Ukraine is the ‘breadbasket of Europe’ in terms of wheat production, and Russia exports wheat to the rest of the world as well. The rise in grain prices is expected to continue for some time due to problems with transportation networks and trade restrictions on Russia, and this will put a spotlight on the performance of general food trading companies such as Mitsubishi Foods. If the situation becomes more difficult, the company’s stock price is likely to rise.

In the crude oil sector, INPEX, which extracts crude oil and natural gas, is attracting attention as futures prices rise. There are few listed resource development-related stocks with a proven track record, and the value of its 4.4% dividend yield gives it room for upside.”

In the event of a military conflict, money is often withdrawn from Japanese companies with overseas operations, wary of geopolitical risks. While many investors may be tempted to sell at a loss, it is also an opportunity to purchase promising stocks at a discount. Stock journalist Genichiro Amami offers the following advice.

The stock price of DMG Mori Seiki, a major machine tool manufacturer, was falling due to uncertainty over the situation in the Ukraine. The company’s sales in Europe and the United States are large, and the drop is due to warnings about geopolitical risks, but the war situation does not directly affect the company’s products, and a rebound is inevitable once the situation settles down. On the other hand, “low-volatility stocks” with small intraday price fluctuations should also be candidates in today’s turbulent market. The most likely candidates for low-volatility stocks are major general contractors such as Obayashi Corporation and Daiwa House Industry Co.

In such an emergency, it is important not to stick to a single stock or holding period style, but to invest from multiple angles and keep a cool head to avoid panic selling.

Because of the unstable situation, it is essential to invest in a variety of approaches in a steady manner, rather than in a single large investment.

(Note: The above information is current as of the March 18 issue.)

From the March 18, 2022 issue of FRIDAY