After Buffett’s visit to Japan, net buying by foreign investors increased
Stocks hit 33 year high since bubble burst
Good performance, low interest rate, shareholder friendly policy attractiveness
Will rising wages and prices lead to a return to growth?
Major indices on the Tokyo Stock Exchange, including the Nikkei 255 Index, are breaking record highs every day in the 33 years since the bubble burst. This is thanks to foreign investors flocking to Japan after Warren Buffett, the ‘investment guru’, visited Japan last month and recommended investing in Japan. They pay attention to the good performance of Japanese companies, low financing rates, and the possibility that the Japanese economy will emerge from a 30-year stagnation.
According to the Nihon Keizai Shimbun on the 30th, foreign investors recently bought net Japanese stocks worth about 5.6 trillion yen (about 52.8785 trillion won) from the beginning of April to the third week of May. It’s faster than starting ‘Abenomics’. Masamichi Adachi, chief economist at UBS Securities, who visited about 40 investment destinations in Europe and the United States this spring, said, “In the past 10 years, foreign investor interest in Japan has never been so high.”
Buffett “Japan is a good investment destination” optimism… ‘Mini Buffett’ one after another
The main factor that led foreign investors to ‘buy Japan’ was the ‘Buffett effect’. In April, Buffett visited Japan and revealed that he had increased his holdings of Japanese trading stocks such as Itochu. Earlier this month, at Berkshire Hathaway’s annual shareholder meeting, “Japan is a better investment destination than Taiwan. I will look for places for Japanese companies to invest in.”
Nihon Keizai called foreign investors who are reevaluating the Japanese stock market like Buffett a “little Buffett,” and said it is spreading to Europe and elsewhere. French manager Carminac recently bought electric and car stocks from Japan. James Salter of Geno Asset Management, which has invested in the Japanese stock market since 1989, founded a new Japanese fund in April and raised 25 million pounds (about 40.8 billion won) in a short period of time. As inquiries pour in, the company plans to raise the fund up to 1 billion pounds (about 1.6355 trillion won).
Increase in corporate profits, low interest rates, attractive shareholder friendly policies
Why is Japan, which has been stagnant for 30 years, attracting attention again? First of all, the long-term low yen has greatly increased the profits of large conglomerates. Over the past decade, Nikkei constituent earnings growth per share has more than tripled and more than doubled that of the 500 largest US companies. The low acquisition cost is also attractive. Although the US and Europe raised interest rates significantly last year, Japan continues its monetary easing policy, allowing it to acquire investment funds cheaply.
Actively introducing shareholder-friendly policies is also a factor in the re-scoring of the Tokyo Stock Exchange. Early last month, the Tokyo Stock Exchange sent an official letter to listed companies asking them to “disclose and implement measures to raise their stock prices for listed companies whose PBR is less than 1x.” A PBR of less than 1x means the stock’s market cap is less than its liquidation value. In response, large corporations such as Mitsubishi Corporation and Fujitsu announced stock buybacks or dividend policies. Influenced by the corporate governance improvement system introduced during the Shinzo Abe administration, the activity of ‘activist funds’ that actively intervene in management to improve shareholder value has clearly increased. More recently, these funds have been calling for the replacement of underperforming executives.
Overcoming 30 years of stagnation
What foreign investors are paying the most attention to is whether the Japanese economy will recover from a long period of stagnation and return to a growth path. Since last year, the price of goods, which have been in place for 30 years, is rising. Thanks to pressure from Prime Minister Fumio Kishida, labor-management wage negotiations in Japanese companies ended this spring with the highest rate of increase in 30 years. “We cannot deny the possibility that the Japanese economy will wake up from sleep due to wage increases and inflation,” said the head of asset management Karminak. A manager in charge of Japanese stocks at GMO, a major US management company, also predicted that “a wage increase will lead to an increase in consumption and investment in facilities.”
However, it is too early to be sure that Japan’s economy will enter a full growth path, so there are many evaluations that remain to be seen as to how long foreigners will ‘buy’ Japan’ lasts. Only after long-term confidence in the Japanese economy is restored, long-term investors such as pension funds are expected to join the current foreign buying trend, which focuses on short-term funds.
Tokyo = Jinju Choi Reporter firstname.lastname@example.org