The East’s Brightest Spots For 2024, Part One: Japan (and a Note on Korea)
Last week, we described briefly some longer-term economic and political dynamics that render China problematic as an investment destination for us. As we noted, while Chinese equities may sometimes make an attractive tactical trade for investors who are so inclined, we think that’s all they should be, and that the longer-term risks, particularly of yuan devaluation, preclude a positive long-term assessment of China’s risk-reward profile.
That was a bit gloomy, but we thought we’d get it out of the way first. This week we move on to the Asian investment destinations we are particularly optimistic about for the coming year: Japan, a note on Korea. Next week, we’ll discuss India.
Japan: A Real Rising Sun At Last, and Maybe A New Secular Bull
Our investment strategy usually integrates both bottom-up and top-down research: focusing on a detailed analysis of a particular company’s performance and prospects in the context of its immediate competitive landscape, and then situating that analysis in the wider context of industry, national and global trends -- whether economic, social, technological, or geopolitical. When these bottom-up and top-down analyses converge, we have the makings of an investment opportunity. When one or the other is lacking, it’s often “back to the drawing board.”
In a similar way, we can look at Japan’s current investment landscape from the micro and macro perspectives: micro, in terms of improvements in corporate governance, and macro, in terms of the country’s incipient exit from the “lost generation” of deflation that followed its epochal stock and property market boom and bust in the late 1980s. We see the micro and macro views aligning in Japan, as both are at the cusp of a break with a long, lethargic, low-growth past. Japan is a turnaround story.
