Harris Associates says cautious on Japan, all in on Europe

Recruit Holdings

30/11/2023 09:21

By Tomo Uetake
       TOKYO, Nov 30 (Reuters) - Harris Associates is finding
plenty of investment opportunities in Europe, while taking a
more cautious stance on Japan, its vice chairman and chief
investment officer of international equities told Reuters.
    Harris Associates is a Chicago-based investment company that
had $95 billion in assets under management as of the end of 
September. The firm, known for "value investing", is an
affiliate of French Natixis Investment Managers.
    Vice Chairman David Herro said the company's Oakmark
International funds were overweight Europe, with a particular
interest in financial stocks.
    "Our attraction to the values is based on price and quality
(of the company). Right now, the biggest pocket of value that we
see is European equities," he said.
    Herro said European stocks, especially the German market,
are undervalued in terms of their return on equity and
price-earnings ratio, as equity prices have been driven down by
energy prices and global events such as the war in Ukraine.
    Harris Associates, however, is approaching Japanese stocks
more selectively, Herro said, adding the company's holdings have
fallen as stock prices rose in the "Abenomics" rally.
    Compared to Europe, the Japanese market was not as
undervalued and there is room for the return on equity to grow,
he added.   
    However, while the overall market might not present the same
opportunities as Europe, Harris Associates finds stocks in
certain sectors, such as IT services and human resource
services, attractive. Drugstore stocks like Sugi Holdings
 7649.T  and Sundrug  9989.T  were also worthwhile, he said. 
    The price of stocks in Japan was one of the barriers
preventing Harris Associates from taking a more bullish stance,
Herro said, as these have ticked up since the early 2010s.
    As a result, Harris Associates' proportion of Japanese
stocks dropped from as high as 23-24% to nearly zero at one
point. Its most recent ratio stood around 3-4%.
    Herro said Harris Associates would like to see more pressure
from the Tokyo Stock Exchange and shareholders, including
Japan's Government Investment Pension Fund, on companies to
improve capital efficiency and balance sheets.
    "There is opportunity, but you just have to remove a lot of
dirt and a lot of rocks, and filter to find gold. So it’s there,
it’s just hard to find it," adding that the conditions to find
such nuggets of gold in Japan are "getting better". 

 (Reporting by Tomo Uetake; Writing by Brigid Riley; editing by
Miral Fahmy)
 ((brigid.riley@thomsonreuters.com;))