(Bloomberg) -- Japanese gaming stocks are emerging as unlikely winners from Donald Trump’s election, as tech investors seek less exposure to trade uncertainties swirling around China-dependent chipmaking gear companies.
Shares of console and software makers like Sony Group Corp., Nintendo Co. and Capcom Co. have seen double-digit returns since Trump won the US presidential vote in early November, outperforming semiconductor-related names like Tokyo Electron Ltd. and Screen Holdings Co. This comes after gains in chip shares outpaced video game stocks for most of 2024, until a widespread rout in August derailed Japan’s market.
“Stocks linked to anime, gaming and entertainment services are unlikely to be impacted by Trump,” said Tomoaki Kawasaki, an analyst at Iwaicosmo Securities. “Many investors are already moving funds into those sectors in preparation.”
Japanese companies control two of the world’s top gaming platforms — Sony’s PlayStation and Nintendo’s Switch — and some of the most successful game series like Elden Ring and Super Mario.
Japan is also home to some of the global semiconductor supply chain’s most indispensable companies, many of which have seen recent sales boosts from China’s stockpiling of equipment. Tokyo Electron relied on China for 41% of revenue in its most recent quarter, while peer Advantest Corp. generated 22%. An expected escalation of US-China trade tensions under Trump poses a risk to those sales, nudging investors toward software and entertainment creators instead.
Japan’s chipmaking stocks have already proven vulnerable to Trump’s proposed tariffs, before he has even taken office. On Nov. 26, after the president-elect announced plans to impose an extra 10% tariff on all goods from China, Tokyo Electron, Screen and Kokusai Electric Corp. all fell by over 3.5% at one point, compared with a 1% decline in the Topix index. Nintendo and Sony both rose that day.
“There’s nervousness around macro and geopolitical risks related to China,” said Robin Zhu, an analyst at Sanford C. Bernstein. “What I observe talking to clients is that gaming is seen as the flip-side of that. Video games and consoles are fairly apolitical.”
China-exposed stocks underperformed those dependent on Japanese and US demand by more than 10% in 2018, when Trump’s first administration imposed a slew of duties on Beijing and elsewhere, Morgan Stanley research shows.
While gaming may be a relative safe haven from geopolitical worries, it’s not immune to risks, said Rieko Otsuka, a strategist at MCP Asset Management Japan.
“Software can’t always escape from taxes and regulations,” Otsuka said. “It’s true there’s a trend toward software right now, but it may just be cyclical.”
Any downside risks to gaming stocks next year will likely be outweighed by anticipation around major new releases, including Nintendo’s long-awaited Switch 2 console and Sony’s Ghost of Yotei game, said Bernstein’s Zhu. Both companies have outperformed the Topix so far this year, with Sony hitting a record price last week.
“Expectations are that gaming industry growth accelerates in 2025, so there’s a lot of optimism,” said Zhu. The release of Take-Two Interactive’s Grand Theft Auto VI, slated for next year, will be another key tailwind, he added.
--With assistance from Momoka Yokoyama.
