In this week’s FundCalibre interview, Richard Kaye, co-manager of the Comgest Growth Japan fund, explains the current dynamics of the Japanese market, discussing volatility, opportunities for growth, and the evolving landscape. He covers how currency fluctuations, reforms, and changing global perspectives are impacting Japan’s economy, providing insight into why now might be the time to invest.
Why you should listen to the interview
Richard Kaye provides a deep dive into the often overlooked, yet highly lucrative, Japanese market. You’ll gain valuable insights into currency trends, market volatility, and growth opportunities from an expert with years of experience. It’s an excellent overview for anyone seeking to invest in Japan’s evolving economy.
This interview was recorded on 21 August 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
The biggest growth for the lowest price
“We’re offering the biggest profit growth for the lowest valuation since this fund’s inception. Even on a global comparison to folks who are looking at US stocks, European stocks, or emerging market stocks, I don’t think you can get a combination like that, not the way that we can find it in Japan. Japan is not a small market, it’s a necessary global allocation, and that allocation has to be made in a sensible way, and that that’s how we’re trying to address our opportunity set.
“Forgive me for blowing my trumpet, but when we had those sort of black Monday type days two or three days ago, our fund had actually fantastic relative performance 60/70bps, 1% over, which is, you know, very unusual alpha for one day. As people started to look again for serious companies in in our markets.”
More volatility to come
“I actually think that the yen is going to go back to a multi-decade average of maybe even 120 to 130 against the dollar. As a reminder, we’re looking today 146 and we were nearly 160 a few days ago. I think we’re going back to the multi-decade average, and that means more volatility to come.
“But volatility is not necessarily a bad thing if you know where to pitch your tent. We want to invest in great companies that aren’t massively yen sensitive. They’re doing a great job. They’re speaking to shareholders. And we think that the folks who’ve been chasing those yen plays, the car companies, the banks and so on, are a little bit misguided. And those sectors are actually going to face a major reckoning in the Japanese stock markets as this volatility continues and the yen returns to its multi-decade average.”
We’re not actually investing in the country of Japan
“A lot of people look at Japan and say, oh yeah, aging society, big sovereign debt problem, whatever, I say forgot about that, because we’re not actually investing in the country of Japan. We’re investing in great companies that happen to be domiciled in Japan, but whose business is mostly outside of Japan. And a lot of the companies that we have in our portfolio have Asia, China, Greater China, as their major source of profit and major source of growth.
“Japan as a market offers you the chance to invest in the growth of Asia. Which I think anybody will admit will be the next generation or several next generations main source of global growth. You can invest in that through Japan very cheaply because of the opportunities that our market gives you.”
Don’t forget the domestic investor base
“The third major advantage that we have in the Japanese market is there’s a very large domestic investor base which is currently under allocated to its home market. And that investor base is moving as we speak.
“Domestic large pension funds are increasing their allocation to Japanese equity. Many of these are the largest investors in the world, Japan government pension investment plan, for example. You may not think of these as dynamic investors, but they have huge pools of cash, which are currently mostly invested in Japan government bonds.
“That is a natural long-term incremental driver of the Japanese equity market. And we work with 23 of those institutions. We know something of what they want to do, and that is an opportunity which no other developed market can have. A large incremental returning domestic investor with serious intentions about investment.”
Conclusion
This episode provides a comprehensive overview of Japan’s market, shedding light on the opportunities that exist despite volatility and global uncertainty. With currency fluctuations, corporate reforms, and a shifting investment landscape, Japan offers untapped potential. Whether you’re already invested or considering entering the market, this episode offers essential insights into navigating this exciting terrain.
Main image: ezael-melgoza-xk0egDY3k5w-unsplash
