Warren Buffett’s Renewing Confidence in Japanese Stocks is Shared by Man Group

According to Man GLG, Japanese stocks are poised to outperform their international peers this year as rising corporate governance standards and a potential policy normalization by the central bank enhance the country’s appeal to foreign investors.

According to Jeffrey Atherton, head of Japanese equities at UK-based Man GLG, a division of hedge fund Man Group Plc, Warren Buffett’s most recent endorsement of the market and the cessation of global rate hikes are also encouraging catalysts.

In an interview last week, Atherton stated, “Medium term, we are very optimistic.” “It does appear that Japan’s rate of change is quickening.”

According to data compiled by Bloomberg, Atherton is the lead manager of the Man GLG Japan CoreAlpha Equity fund, which has outperformed 94% of its peers over the past year by returning 18%. Based on average total returns over the previous 12 months, Citywire ranked him, along with his co-managers Adrian Edwards, Stephen Harget, and Emily Badger, as the joint second-best money managers in Japan in February.

When it announced in February that it would start requesting capital improvement plans from companies trading below their book value in the spring, the Tokyo Stock Exchange set off a rally in several Japanese stocks. With his announcement that he had increased his holdings of Japanese stocks this month, Buffett, a well-known value investor, added to the optimism.

According to Atherton, “many investors are still unaware of the corporate governance movement and still view Japan as a global cyclical market.” “The news of Buffett’s investment affects sentiment, but it also hopefully has an effect on foreign money actually coming into Japan, which hasn’t happened for many years.”

Over the past year, the broad Topix index of Japanese stocks has increased by 7.4%, while the MSCI All-Country World Index has decreased by 5.5%. However, the advantage has diminished, with the MSCI gauge barely beating the Topix this year.

Atherton stated that the next two BOJ decisions and corporate earnings would be the two main things to watch for any additional indications of policy normalization.

The next three months could set the stage for the second half of the year, according to him. “There’s a high chance that the BOJ tells us what it’s going to do by the end of June,” he said.

Prime Holdings

According to information gathered by Bloomberg, Atherton’s fund’s top holdings include Panasonic Holdings Corp., Sumitomo Mitsui Financial Group Inc., and Mitsubishi Estate Co.

The retail, real estate and construction industries are among the “unloved” domestic stocks that Atherton said he prefers.

The country’s reopening following Covid, the stronger purchasing power due to excessive savings during the pandemic, and the government and BOJ’s push to keep inflation stable at around 2% are all likely to propel spending and the top lines of corporations, he said.

According to Atherton, “We’re slightly less optimistic about financials,” and the failure of Silicon Valley Bank “showed what could happen when a bank goes wrong.” Insurers are also in a better position, he continued because they are less susceptible to liquidity issues in the event that Japanese interest rates rise.

The major Japanese stock indices are still significantly below their historical peaks after their recent rally. The Nikkei 225 Stock Average last closed at a high of 38,915.87 in December 1989, just before the collapse of what became known as the “bubble economy.” It is currently hovering around 26,650.

Atherton, a manager of Japanese equities with more than three decades of experience, stated that “the current market is still lower than where I started.” “I’m very optimistic that Japan will have a run and go through that 39,000 level at some point in the not-too-distant future, hopefully before I retire,” he said.