In September, Yoshihide Suga took over from Shinzo Abe, Japan’s longest-serving Prime Minister. As party secretary of the LDP, Suga was responsible for the implementation of Abenomics and a strong supporter of related reforms. In Japan, Suga is also known as ‘uncle Reiwa’. Suga revealed Reiwa as the name of the new imperial era. Everything indicates that with Suganomics the line of Abenomics is being continued but at a much faster pace. It sets stock market records in Japan. This is probably only the beginning.
Suga took office after an economic contraction of 28 percent in the second quarter. So it was time to stimulate the economy. With two of Abenomics’ arrows, fiscal and monetary stimulus, it is more of the same. Suga focuses mainly on the third arrow, that of reforms. In the 1980s, Suga helped privatise Japan Railways and has been a staunch advocate of market forces ever since. Immediately after taking office, it became clear that he also has three spearheads: digital transformation, reform of the financial system and more competition in the field of telecommunications. According to Suga, telecoms tariffs in Japan could be cut by 40%. Suga is known for delivering on his promises, not least because of his excellent monitoring of bureaucracy in Tokyo. The potential for reform in Japan is enormous. Certainly, in the services sector, foreign companies have hardly any access. As a result, productivity in that part of the economy is as much as 50% higher in the United States. If Suga succeeds in bringing productivity up to American levels in ten years’ time, then the Japanese economy alone will grow by 3% per annum over the next ten years.
Since the 1980s, hostile takeovers have been a global phenomenon, but not in Japan. A hostile takeover there has never been successful. That is going to change. Since 2019 there have been several attempts and leading names (Itochu and Hoya) have been involved. Now Nitori’s hostile bid for Shimachu is being outbid with a 30% higher bid from the Japanese DCM. Nitori is an example to many other Japanese companies. Akio Nitori is the founder of Nitori and a respected man in Japan. In the past, he was chairman of the employers’ organisation Keidanren and CEO of the conglomerate Orix. Following a good example, certainly in Japan. As many as half of the companies in Japan are below book value and there are several companies whose market capitalisation is lower than their net cash position. Japan is a paradise for hostile takeovers.
Next year there will be elections in Japan. If Suga performs well, which means, among other things, getting the Coronavirus under control, he will actually be elected as the leader. At present, there are about as many people infected with Corona in Japan as there are in Switzerland on a daily basis. Suga will also benefit from the postponed Olympic Games next year. Moreover, now that Trump is going to disappear from the battlefield, he will have to do less bidding between China and the United States. The Japanese stock market will benefit greatly from the economic recovery after the Corona crisis. After all, Japan is still seen as a warrant on the world economy. The Nikkei 500 index is at an all-time high, but the Nikkei 225 index still has some way to go, although it is also at its highest level since 1991. Apparently, Warren Buffett also sees bread in old Japan. The Japanese themselves invest more in Japanese shares. For years they ignored their own stock market and Mrs Watanabe — in Japan women usually manage family wealth — earned her money for a long time with carry-trades in different currencies, after first borrowing cheaply in Japanese yen. However, due to falling interest rates, she too now has to look for an alternative. Many Japanese companies seem to have been designed for a world after the Corona crisis. Circular, sustainable and robust are typically Japanese values. Strange that many investors are still weighing Japan down.
Chelton Wealth — Quanify GmbH is an independent asset manager. We serve private individuals, institutions, foundations and entrepreneurs with independent and personal asset management. If you would also like to be kept up to date with the latest news, please sign up here for our weekly newsletter. Would you like to know more about the possibilities? Then request a callback. We will contact you without obligation.
Missed an article? No problem, just visit our MARKET BLOG