Analyst: Sees an ‘appetite’ for Japan domestic-related names, amidst rotation out of U.S. stocks
uh in small cap um there’s a lot of growth small cap um but gross small cap has underperformed over the last few years because it previously had outperformed and therefore valuations were quite high. So we’ve seen a big contraction of valuations of the growth companies within small cap and then the the the sort of more zombie companies stuff full of cash amongst the small cap you know that they were trading on extremely low uh uh PBRs of let’s say point4 times those have maybe gone up to point8 times. So I think from now on it’s going to be a lot more uh uh stock specific rather than factor specific. Okay. All right. Yeah. And Tim, that definitely reminds me of the conversation around the great rotation in the US equities when we’re really questioning the major concentration in the US market as well. But bring it back to Japan. A lot of conversation with our markets guests have been find opportunities in domestic market oriented sectors. I wonder if the same would apply to Japan as well. Very much so. In fact, um, a lot of the, um, investors we’ve been taking around Japan recently have been focusing more on on, uh, on domestic related stocks that have, you know, that have absolutely nothing to do with exports. So that, you know, there there definitely is an appetite there. And when it comes to obviously the the value up story, there have been some headlines. I know that it’s a company specific story. Toyota Motors going after Toyota industries as well. Do you see the corporate reform story sort of being at at any point questioned in terms of how foreign investors are looking into uh Japan at this point? Uh no, I mean I think uh uh investors are seeing this as encouraging and and the TSSE is encouraging parent subsidiary buyins. So, you know, a lot there’s still a lot of companies out there that say maybe uh, you know, are held between, you know, 30 40 50% by their parent company and and the TSC is in, you know, encouraging these buyins or uh divestments. Timothy, I wanted to pick up on the small cap story um because I suppose so much of it does depend on how domestic demand is going in Japan and we know that, you know, consumption has been hurt by the inflation story. So how much of this is going to be driven in your view by uh wages growth? Uh you know obviously we’re looking at the tariff impact on corporates but it is also structural isn’t it? Yeah uh absolutely you know wage wage growth is fairly constrained. Um so we can’t expect too much from from that but you know you have to remember that in in the uh Japan’s domestic market it’s it’s really been dog eat dog. you know there there have been uh uh way pretty well way too many companies in each sector. So there’s a lot of consolidation going on within each sector and this means a lot of opportunity for small companies to either be bought or buy other companies. Um and remember also we’ve got a rapidly aging population. So a lot of the founder presidents are retiring. So this is actually again a sort of a tailwind in terms of in terms of uh consolidation with each sector and and you know we’re seeing that in the banks for example. You know, there’s a lot of regional banks.
Timothy Morse of Asymmetric Advisors discusses opportunities with Japan small-caps and says the ageing population is a ‘tailwind’ for the rapid consolidation of the domestic market.
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