The Sun Rises Over Japan

Suddenly the investment world has set its sights on Japan. Where does this change come from after decades in the shadows?

As is so often the case, people buy recent past performance. Only when a market is performing does it get reported on and read about. The various Japanese stock indices have risen by 30% to 40% over the last 12 months. But in yen. And the yen was weak. The returns in euros therefore fell to around 20%. A result we can all still live with. However, the habitual warning bears repeating: “Past performance is not indicative of future returns.” And as the yen has shown, returns can rise or fall for investors with other base currencies. Lo and behold, these regulatory disclaimers reflect reality after all.

Future returns matter

The change is clearly noticeable in Japan. It began in 2012 under then Prime Minister Shinzo Abe, who fell tragic victim to an assassination in July 2022. On January 11, 2013, his government adopted "Strategies for Reviving the Japanese Economy". The era of Abenomics policy began.

Private investments were encouraged, corporate governance principles expanded, the labor market reformed, women found their role enhanced and much more transpired. The aim? Cultural transformation in business and markets. For example, the Tokyo Stock Exchange obliged companies with a market capitalization below book value to take measures lifting market value. Just a few weeks ago, it published corresponding recommendations and corporate case studies.

It took over 10 years for the government's initiatives to take hold. In my view, today sees the cultural shift complete. The number of independent board members has increased significantly. Only a few companies still deploy so-called "poison pills" to fend off unwanted takeovers. The presence of activist investors working with company management to bring about positive change in capital allocation has risen in kind. 

Many companies also increased their dividend payouts and bought back more of their own shares. Nevertheless, balance sheet liquidity continued to rise while debt ratios remained stable. 

Japanese carp for the taking

With 3,925 listed companies, the Japanese stock exchange is one of the world's largest stock markets (as of February 16, 2024). Investors are happy about the large pond in which they can fish. The driving factor is the still favorable valuation of Japanese equities on average and their attractiveness compared to other major stock markets. 

In May 2023, I listened to Warren Buffett and Charlie Munger at Berkshire Hathaway's annual meeting. Come late May, I will travel to Japan and visit companies in Tokyo, Osaka and Kyoto that are potentially interesting for the Gutmann Portfolio. Accompanying me will be Aspoma, our experienced Japan partner. 

Have I piqued your curiosity? I will share detailed travel findings with you, dear clients, in due course.