Land of the Rising Sun?

Reflections from recent company meetings in Japan

Has Abenomics failed?  This remarkably time constrained, somewhat nebulous and completely binary question is the standard refrain when global investors or international financial newspapers discuss Japan.  We have just returned from seeing companies in Japan and, considering the dearth of global investors at an investment conference we visited, it seems that many have decided that the answer is a resounding Yes.

The Chief Cabinet Secretary, Yoshihide Suga, disagreed when he spoke at the conference pointing to the facts that, since the run up to Abe’s election, the Nikkei 225 index is 90% higher, the Yen is over 20% weaker and there have been some big changes like the introduction of a corporate governance code, increased female workforce participation and an enormous increase in tourism.

Source: https://en.wikipedia.org/wiki/Tourism_in_Japan#/media/File:Foreign_tourist_visited_Japan.svg

For us, whilst the resulting debate is interesting we think that the question misses the point.  However interesting the macro is, we think it is essential to own Japan at the micro level and avoid flows based euphoria/despondence when it comes to the far eastern archipelago.  Japan is a largely under researched and irrational market which means that we can own some excellent companies at a discount to both their recent average and global peers.  The push for improved profitability and enhanced corporate governance is a national one but only actually occurring in certain companies.  We own several of these companies on behalf of our clients; we met many of them on our recent trip and were thrilled to hear that the changes they are implementing are having the desired effect and that they are intent on further enhancing the profitability and durability of their business franchises.

At big sporting events you will often hear the home crowd shout “Ganbare Nippon” which broadly means “do your best, Japan”.  In the world of listed Japanese corporates we would echo this cheer, and will very happily own Japan’s best whilst doing so.

By George Palmer, CFA ACA

Risk Warnings:

The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions.  The information provided does not constitute investment advice and it should not be relied on as such.  All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.