Should advisors chase Japanese stocks in 2024?
Is now the time for advisors to get big, or perhaps bigger, in Japan?
A 13% drop in the Japanese yen year to date has helped fuel an impressive run in Japanese stocks so far in 2023. The widely held, non-hedged iShares MSCI Japan ETF, for instance, has returned over 14% since the start of the year, while the iShares Currency Hedged MSCI Japan ETF is up a gobsmacking 36%.
Aside from the weakening currency, which boosts not only Japan’s exports but also its tourism industry, Japanese equities were also blessed by Berkshire Hathaway CEO Warren Buffett last spring when he visited the country and announced he was raising his stakes in five of its top trading houses to 7.4%. The firms are Misubishi Corp., Mitsui & Co., Itochu Corp., Marubeni and Sumitomo.
The so-called “Oracle of Omaha” first acquired stakes in these firms in August 2020, in an initial purchase worth about $6 billion.
Neil Hennessy, CEO of Hennessy Advisors, says owning Japanese stocks with the yen trading around 150 to the dollar should be an easy and obvious trade because of the effect on the price of Japanese goods. The non-hedged Hennessy Japan Fund is up almost 17% thus far in 2023.
“How can you not buy quality products at a cheap price? That’s just a given,” Hennessy said. “If you miss that trade, then you shouldn’t be investing at all.”
From a macro perspective, Masa Takeda, portfolio manager for the Hennessy Japan Fund, added that signs of sustainable inflation — a positive in Japan, unlike in the U.S. — are finally evident in the country. Moreover, from a corporate level, Takeda said Japanese companies are “striving for better labor productivity” and will “introduce more merit-based compensation systems in order to push through continued wage hikes.”
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