According to the Nikkei Asia, Foreign Investors keep loading the truck with Japanese shares. The net buying reached $2.75 bn in the 4th week of May concluding the first streak of 9 consecutive weeks of net buying in the past 6 years. There are very different rationale and stories behind this significant new wave of interest. Some are betting for structural changes and hoping on changes of corporate rules and governance. Some like Warren Buffet are attracted by segments of the market like trading companies with an eye on valuations. Many of them are looking beyond large caps and willing to explore domestic mid-caps in construction or consulting. Hedge funds are reportedly shifting assets from Asia to Japan and staff and offices from Honk Kong to Tokyo. Pension funds are playing the long game. Norges the Norvegian Central Bank who is running the World largest wealth fund recently built a 5% stake in Iwatani a company involved in liquified gas and hydrogen. The untold narrative seems to imply a structural rebalancing from China into Japan. 

We are not excited by the reform story. It is a tune regularly plaid by foreign brokers and it never worked. The reality is different. There are actually a lot of things that work in the Confucian blend of capitalism entertained in Japan. Companies serving different stakeholders and not only satisfying shareholders can focus on the long-term and what they are good at. Cost cutting is a last resort solution and whatever happens to quarterly earnings, Japanese managers tend to invest more in the long-term. Being an Island, they like to keep their manufacturing close by. In the time of onshoring, unlike Europe or America, Japan has kept the best of its manufacturing capacity and skills at home and sounds surprisingly fit to deliver and perform in key areas such as advanced materials, semiconductor equipment, robotics or clean energy with a edge on Hydrogen. 

We don’t think Japanese management are suddenly going to start returning money to shareholders or pile on debt to raise return on equity. There are going to do exactly like they have done in the past: investing in the long-term, keeping their technological strengths and focusing on execution. And this precisely for that reason, that foreign money should keep buying. 

And yes, I was going to skip the main point: Japan has a very rich pool of debt-fee, boring but growing industrial companies trading on very attractive valuations. The Japanese equity market is like their cuisine: varied, tasty, creative with an obsession with perfection and client satisfaction. Both used to be very expensive and are now affordable.