What kinds of investment opportunities should investors focus on in Japan? How to generate investment ideas in this vast and idiosyncratic equity market? How to think about governance at Japanese companies? These are just some of the questions we asked members of our global value investing community. Below are exclusive insights to these questions, featuring the collective wisdom of the leading global and Japan-focused value investors and thought leaders.
On Japanese Investment Opportunities
“I see attractive investment opportunities in Japan. In particular, these include investing in companies which have room for financial leverage, which are expanding overseas with growth trends, and which have entrepreneurial spirit seeking growth. In addition, you should research how Japan’s energy policy is shifting out of the Fukushima nuclear meltdown. I am also very focused on companies with the technology and know-how to achieve a clean energy society.” —Shuhei Abe, CEO, SPARX Group
The beauty of Japan is despite all the bad things – the lack of capital allocation and so forth – the stock picking works like a charm. Even though the market today in Japan is lower than it was fifteen years ago, we’ve found ways to make a lot of money over the years through individual stock picking.
”Most of the companies, certainly the companies that we look at, have never gone to the capital markets since their IPO. In many cases their IPO was not a function of monetizing anything for the family, it was just sort of a rite of passage. What I think will happen over the next five to ten years in Japan is not too dissimilar probably what happened in the United States in the late 1970s and 1980s. You have a situation where privatization is a preferable corporate action and many companies will get either bought in by their founders, there’ll be consolidation in the industry or there’ll be parent-subsidiary rollups. And this will change the supply-demand dynamics for Japanese equities.” —David Baran, CEO, Symphony Financial Partners
“The beauty of Japan is despite all the bad things – the lack of capital allocation and so forth – the stock picking works like a charm. Even though the market today in Japan is lower than it was fifteen years ago, we’ve found ways to make a lot of money over the years through individual stock picking. But it’s painful. It’s a very odd experience to invest in Japanese equity.” —Charles de Vaulx, Chief Investment Officer, International Value Advisers
“We’re looking at three broad buckets. One is industry consolidation. We’re seeing a lot of domestically oriented industries that have limited growth opportunities based on population growth or GDP growth. But within those industries…we’re finding shrewd management teams that are executing upon strategies to consolidate their industries…so even with slow growth, domestic industries, were finding some attractive value and some exciting upside. Another example is international expansion…in the last couple of years we’ve seen record levels of outbound M&A…Irrespective of the core driver for the accelerated international expansion, we’re finding attractive upside in companies that in effect are taking cash or other capital that has been sitting idle on the balance sheet and they’re putting that capital to better work by investing in overseas expansion. A last trend where we’re finding some attractive upside in Japan is, and that is Japan’s participation in emerging market growth. China is Japan’s largest trading partner. Japan is the largest trading partner for other rapidly growing Asian markets…And what we’re finding is that many of the Japanese companies that are increasingly geared toward emerging market growth, we’re able to invest in these companies at very attractive valuations.” —Drew Edwards, Managing Director, Advisory Research
“With exceptions, we are particularly attracted to the stocks of Japanese companies that have been successful outside Japan and do quite a bit of business outside Japan, because some of them are totally world-class…the bicycle is a strange consumer good because the real brand is associated not with the bicycle brand but with the bicycle parts, the brand of the bicycle parts. And for pedals, for brakes, for gear shifts, Shimano [Osaka: 7309], and indeed the name Shimano is on the part, Shimano truly dominates good quality bicycle parts throughout the world. You have Fanuc [Tokyo: 6954] which is known for its robots but which in fact should be better known for the fact that they do software for machine tools, so you have what I call world-class businesses. We are partial to these [companies] particularly since in those cases, management seem to be more open because they operate successfully outside Japan. They seem to be more open.” —Jean-Marie Eveillard, Senior Adviser, First Eagle Funds
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