Will Buffett’s $6 bn bet help boost Japan’s stock market?
JAPAN’S stock market, much overlooked by UK investors in recent years, has come under the spotlight again. This follows President Shinzo Abe stepping down to receive treatment for a long-term illness – and also confirmation of Warren Buffett’s multi-billion dollar investment in five of the country’s biggest companies. Both announcements, say investment experts, will have implications for Japanese equities.
Although President Abe will not go until his successor is appointed, the stock market was not initially impressed by his impending departure, falling sharply in response.
Yet it has since recovered most of these losses, helped in part by subsequent news of Buffett’s confidence-boosting $6 billion investment in conglomerates Mitsubishi, Mitsui, Itochu, Sumitomo and Marubeni – socalled ‘sogo sosha’ or ‘trading houses’.
Buffett, 90, is the world’s most renowned investor and his investment company Berkshire Hathaway has big stakes in some of the globe’s strongest corporate brands such as Apple and CocaCola. As a result of his shrewd investments, shares in Berkshire Hathaway have delivered shareholders long-term average annual returns of 20 per cent.
Most investment commentators contacted by Wealth on Friday believe the overall impact of these two announcements will be positive for the Japanese stock market.
Over the past year, the Nikkei 225 Index, a barometer of the share price performance of Japan’s leading companies, has risen by 11 per cent, but fund managers believe the stock market remains under-valued compared to other world markets.
Joe Bauernfreund is manager of two investment funds that have exposure to Japan – the £645 million AVI Global Trust and the £108million AVI Japan Opportunity Trust.
He describes Buffett’s investment as an ‘interesting move’. He adds: ‘I have long argued that the Japanese stock market is cheap and Buffett seems to be agreeing with me.
‘The companies he is backing are sprawling conglomerates and I imagine Buffett is hoping they will make him money as the Japanese economy and the wider world economy emerges from lockdown and COVID-19.’
Bauernfreund does not hold any of these companies in his trusts’ portfolios.
The fund manager also believes Buffett’s move may encourage other foreign investors to look upon Japanese equities in a more favourable light.
He adds: ‘In recent years, foreign institutions have been net sellers of the market. Maybe Buffett will now trigger a change in international sentiment and make some foreign investors realise that many Japanese companies will play a big part in any recovery in the global economy.’
President Abe has been instrumental in overseeing corporate governance reform of Japanese-listed companies, aimed at getting business owners to focus more on the financial interests of shareholders.
The result has been higher dividend payments and more companies striving to make profits – moves that have been driving forces behind a stronger stock market.
Sophia Lia, joint manager of investment fund First State Japan Focus, says there are concerns that this emphasis on good corporate governance could wane once Abe stands aside. But she believes otherwise, arguing it has become an ‘irreversible trend’. She adds: ‘Japanese companies are focusing on shareholder return and corporate governance. It’s become a consensus.’
Bauernfreund agrees. He says: ‘Improved corporate governance has been slow in coming, but the changes are now entrenched in the psyche of many listed companies. Abe’s resignation will not change this. The emphasis will remain on shareholder return.’
Matthews Asia, an investment house that specialises in Far East equities, believes that a continuation of the economic policies pursued by Abe – dubbed ‘Abenomics’ – should ‘provide a strong foundation for continued growth opportunities among Japanese equities’.
Investment fund scrutineer FundCalibre identifies ten ‘elite’ Japanese investment vehicles. They include – stock market identification codes in parenthesis – investment funds Axa Framlington Japan (B7FSWP6), Baillie Gifford Japanese (0601113) and T. Rowe Price Japanese Equity (BD446L1).
Highly rated stock market listed investment trusts are Baillie Gifford Japan (0048583) and Baillie Gifford Shin Nippon (BFXYH24).