Following the election of Donald Trump as the new U.S. president, Japanese gaming stocks have seen significant growth and are becoming an attractive option for investors looking for stability in times of geopolitical uncertainty. Concerns about escalating trade tensions between the U.S. and China, which could affect the global semiconductor supply chain, have shifted investors' attention to gaming and entertainment stocks, which are currently considered a safer investment.
The gaming industry outperforms semiconductors
Japanese gaming companies such as Sony Group Corp., Nintendo Co., and Capcom Co.[1] have achieved double-digit returns since the election, even outperforming semiconductor giants such as Tokyo Electron Ltd. and Screen Holdings Co.* While semiconductor stocks have seen strong growth in early 2024, their dependence on the Chinese market puts them at risk from Trump's trade policies. For example, Tokyo Electron received 41% of its revenue from China in the last quarter, which means that its business is particularly sensitive to possible tariffs or other restrictions.
On the other hand, gaming companies are less affected by geopolitical issues. Their products, such as Sony's PlayStation consoles, Nintendo's Switch, and globally successful series like Super Mario and Elden Ring, have diversified markets and minimal dependence on China. As Sanford C. Bernstein analyst Robin Zhu noted, "Video games and consoles are quite apolitical," making them an attractive choice for investors avoiding this kind of risk.
Market reaction shows a shift to gaming stocks
This shift in investment sentiment was already evident at the end of November, when Trump announced a plan to impose an additional 10% tariff on all imported goods from China. Semiconductor stocks such as Tokyo Electron[2] and Screen Holdings[3] fell more than 3.5%, while shares of Nintendo[4] and Sony[5] rose on the same day.* This difference points to a growing preference for the gaming and entertainment sector as a haven from geopolitical risks.
Growth factors of the gaming industry
There are several reasons for optimism in the field of Japanese gaming stocks. The main ones include the expectation of big new products, such as Nintendo's Switch 2 console and Sony's Ghost of Yotei, which should significantly boost growth and attract consumer interest. [1] In addition, Japanese gaming companies maintain a strong position in global markets, with their products being among the most popular in the world. In addition, the entire gaming sector is predicted to accelerate growth significantly in 2025, thanks to anticipated titles such as Take-Two Interactive's Grand Theft Auto VI, which has the potential to be a major catalyst for growth. [2]
Risks and other considerations
Although in-game stocks offer relative protection against trade conflicts, they are not entirely immune to risks. For example, taxes and regulations can also affect the software industry, and as strategist Rieko Otsuka points out, "the trend towards software can only be cyclical." Nevertheless, these risks are expected to be outweighed by growth factors and the news that the sector will bring.
Conclusion
Japanese gaming stocks, led by giants such as Sony and Nintendo, represent a compelling investment opportunity in the current market environment. Their resilience to geopolitical risks, coupled with a strong product offering and expected growth across the industry, makes them attractive to investors looking for stability and long-term potential. For those looking to diversify their portfolios away from risky sectors, the gaming industry is a strategic addition. [3]
https://finance.yahoo.com/news/flight-chip-risks-boosts-japan-210000032.html
* Past performance is not a guarantee of future results
[1], [2], [3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.
[1] Capcom Co.'s share price performance over the past five years: https://finance.yahoo.com/quote/9697.T/
[2] Tokyo Electron Ltd.'s share price performance over the past five years: https://tradingeconomics.com/8035:jp *
[3] Screen Holdings Co. stock price performance over the past five years: https://tradingeconomics.com/7735:jp *
[4] Nintendo Co.'s stock price performance over the past five years: https://finance.yahoo.com/quote/NTDOY/ *
[5] Sony Group Corp. share price performance over the past five years: https://tradingeconomics.com/sne:us *
