Portfolio Manager Call Recap: The Japanese Market and COVID-19
May 6, 2020 - Portfolio Manager Masa Takeda shared his insights on Japan’s economy and market following the coronavirus outbreak as well as the benefits of Asia-based active management when investing in Japan.
Japan has been less severely impacted by COVID-19 than Western countries and has avoided stringent lockdowns, due in part to its culture of mask-wearing and personal distance, and its low-turnover labor practices:
With a population of approximately 1/3 that of the U.S., Japan has recorded approximately 16,000 infections and 600 deaths (as of May 6).
Japan’s March unemployment rate was 2.5%, up just slightly from February.
Japan’s growth-oriented, pro-business policymakers have swiftly enacted a strong stimulus package.
Japan’s $1 trillion stimulus package represents 20% of GDP and exceeds those of the U.S. (14% of GDP) and Germany (5% of GDP) on a relative basis.
The Bank of Japan has pledged to substantially boost asset purchases, including buying ETFs at a pace twice the previous level, and it has removed the ceiling on its bond purchasing program for greater flexibility.
China’s quarantine had a severe short-term impact on supply chain operations and demand for Japanese goods, but as China has largely succeeded in containing the virus, we have already seen signs of recovery.
Prior to the crisis, valuations in Japan were reasonable and supported by corporate profits, and they compared favorably to other nations. Assuming earnings recover in 12-24 months, we believe current valuations are quite attractive.
Japan is home to many globally competitive companies with large moats, strong management teams, good transparency, and reasonable valuations.
The Hennessy Japan Fund is focused on global businesses, and geographic diversification is an important part of our strategy. The portfolio has roughly equal exposure to 1) Japan; 2) the U.S. and Europe; and 3) Asia and the rest of the world.
We believe active managers in Japan can outperform the index, which is dominated by low-growth “sleepy giants,” by uncovering high-growth companies with long-term growth opportunities.
Based in Tokyo, our competitive edge is our decades-long familiarity with Japan’s business landscape and unique corporate culture, which allows us to translate day-to-day research into winning investment ideas.