Japan Is the Most Exciting Market in the World
There are conflicting stories to tell about investing in Japan at the moment, and annoyingly both appear to be correct. The first is that the stock market is on fire, producing the best returns of any major developed country since the start of last year as foreigners wake up to the new shareholder-friendly approach of government, stock exchange and corporate boards. Billionaire Warren Buffett’s visit and positive comments in the spring highlighted the value of venturing to the country, and stocks are up more than 20% since late March as foreign cash poured in.
The second is that all the work has been done by the collapsing yen, and in dollar terms Japanese stocks have performed almost exactly like the S&P 500. I’m convinced by both stories, which is tricky. Under the first, I’ve long thought that Japan is shifting more toward market capitalism (even as the U.S.
appears to be moving away from it). The reform process that began with the third of the “three arrows" of Abenomics a decade ago is finally bearing fruit, as directors increasingly focus on profitability, run down cash piles and put investors first. There is still a long way to go (the barbarians remain mostly outside the gate) but buybacks, hostile takeovers and pushy investors getting their way are no longer impossible.
It isn’t just that the government, takeover panel and stock exchange are trying to create a friendly environment for shareholders. As Peter Tasker, co-founder and chief strategist of Arcus Investment, points out, they are pushing at an open door. Companies overall have net cash, freeing them from the obligations to banks that made them focus on their lenders rather than their shareholders.
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