Weekly Buzz: Japan’s walking on sunshine

26 May 2023

📈 Why Buffett is betting big on Japan

Japan’s stocks have been making a comeback – and it’s been fierce. Thanks to alluring valuations, a robust growth spurt, and a conducive business environment, these shares have been shaking off a thick layer of cobwebs. And the oracle of Omaha, Warren Buffett himself, is reaping the benefits.

Way back in 2020, Buffett started investing in the five bigwigs of Japanese trading companies – huge conglomerates known as “sōgō shōsha” – that are the veins pumping life into the economy. They’ve got deep roots in Japan’s history, and provide an array of commodities: food, textiles, machinery, and (most significantly) energy and metals. Last month, Buffett revealed that he had upped his stake in these firms – making it his largest investment outside of the US and Europe – with signs that he might still have appetite for more.

It makes sense because these companies tick all the boxes on Buffett’s investment checklist. They're high-quality, profitable businesses protected by high entry barriers; they're well-managed; they shell out handsome dividends; and their stocks trade at attractive prices. As you can see from the chart above, these companies look pretty appealing relative to US stocks.

Buffet isn’t the only one singing praises for the Land of the Rising Sun – investors like Man GLG, JPMorgan Asset Management and Morgan Stanley are among those who see more upside in Japan’s Topix Index, which reached its highest level since 1990 this week. What’s more, compared to other markets like the US which are grappling with economic headwinds (two words: debt ceiling), Japan’s steadier waters look much more attractive.

What does this mean for investors? 

Before you decide to blindly copy Buffett, it’s important that you remember that he – and StashAway – sees investing as a marathon, not a sprint. (His preferred holding period, he’s often said, is “forever”.) Buffett isn’t trying to predict the trajectory of Japanese stocks over the next year – and neither should you.

That being said, if you're looking to add exposure to Japan in your portfolio, there are a couple of ways you can go about it. 

  1. Our General Investing portfolios are currently overweight on Japanese equities, reflecting the economy’s relative attractiveness. 
  2. To add more targeted exposure to Japanese stocks, our Flexible Portfolios allow you to select specific geographies to focus on under Global equities. 

This section was written in collaboration with Finimize.

🎓Jargon buster: Valuation

Valuation is like playing detective in the financial world. It's all about figuring out the fair value of a stock or security based on financial clues like earnings, and it plays an important role in shaping investment decisions. 

A common valuation metric that investors use is the price-to-earnings (P/E) ratio, which compares an asset’s price to its earnings per share. A high P/E ratio can suggest high expectations for an asset’s future growth – but it could also mean that it’s “overvalued” or too expensive, given its fundamentals. A low P/E ratio, on the other hand, can suggest that an asset has limited growth potential, or that it could be “undervalued” – that is, relatively cheap.


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