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.
Masakazu Takeda, CFA, CMAPortfolio Manager
- 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.
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