Hedge funds see honey in Japan’s value traps
31/05/2019 03:16
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Pete Sweeney
HONG KONG, May 31 (Reuters Breakingviews) - Hedge funds see
honey in Japan’s value traps. Companies from the Land of the
Rising Sun dominated pitches at Hong Kong’s Sohn Conference on
Thursday. They pointed to signs of unjustified panic in the
country’s equities slump, creating opportunities to buy low. But
even optimists highlighted the persistent cash hoarding and
slack governance that have long scared investors away.
Prime Minister Shinzo Abe’s promises of reform - efforts to
push local firms to boost profitability, put their balance
sheets to work, and be more responsive to shareholders - have
tantalised foreign funds, including activists who took positions
in troubled giants like Toshiba 6502.T .
But their interest has not been widely shared. Masahiko
Yamaguchi of York Capital Management pointed out that foreign
holdings of Japanese shares have steadily fallen in recent years
to slightly over 5 trillion yen ($46 billion), a quarter of what
they held in 2015. With lacklustre economic performance
weighing, the Topix .TOPX index has shed 20 percent since the
beginning of 2018. On average, Japanese firms trade at 12 times
forward earnings, near a historic low, and down from 18 times
four years ago.
That’s appealing to counterintuitive value investors. At the
annual gathering, managers pitched unloved shares in companies
like JR Kyushu 9142.T , a staid railway company with an
under-appreciated real estate business; beer-dispensing champion
Hoshizaki 6465.T , beat up by shareholders after a sales fraud
scandal; and old-school refiners Idemitsu and JXTG Holdings
5020.T .
The presenters blamed much of the battering on poor
communication and worse management. Aaron Stern of Fir Tree
Partners pointed out that JR Kyushu, which makes most of its
profit from property, barely describes its portfolio, and holds
a large cash pile despite negative interest rates. Similar
problems are visible at the refiners and Hoshizaki. Casio
6952.T , meanwhile, was proposed by Interlink/Swiss Asia as a
short play, thanks to complacent bosses who failed to keep up
with developments in the watch industry.
The prospect of quick double-digit gains dangled by the
speakers may intrigue those with risk appetite. But plenty of
investment officers have been deceived by false Japanese dawns.
Arguing with market forces is as dangerous as ever.
On Twitter https://twitter.com/petesweeneypro
CONTEXT NEWS
- Hedge fund managers presented investment ideas at the Sohn
Hong Kong Investment Conference on May 30.
- The annual event, which raises money to fight
gynaecological and paediatric cancer, heard presentations from
managers at Oasis Management; Blue Orca Capital; ARCM; Yunqi
Capital; Tybourne Capital Management; Flowering Tree Investment
Management; Fir Tree Partners; York Capital Management;
Quintessential Capital Management; Interlink/Swiss Asia and WT
Asset Management.
- For previous columns by the author, Reuters customers can
click on SWEENEY/
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(Editing by Clara Ferreira Marques and Katrina Hamlin)
((pete.sweeney@thomsonreuters.com; Reuters Messaging:
pete.sweeney.thomsonreuters.com@reuters.net))