Japanese Stocks—in the Land of Rising Dynamism

Mutual Series’ Christian Correa and Mandana Hormozi believe the Japanese equity market is finally benefiting from reforms, inflation, and efforts to push companies to focus on growth and improve their valuations.

In a recent roundtable, Mutual Series’ Chief Investment Officer Christian Correa and Portfolio Manager Mandana Hormozi discussed their recent trip to Japan and what they see ahead for the local market and economy. Here are their key takeaways.

  • Inflation is having a positive effect on the business environment in Japan, with many companies able to differentiate their products beyond low prices.
  • At the same time, the country is taking a dynamic view toward businesses, and companies are more willing to talk about future growth and how they can change to improve returns on capital.
  • Companies are more able to take risks now than they have in the past to push on potential growth drivers.

An edited transcript of their conversation follows.

You both just got back from a trip to Japan. There’s been a lot of talk about opportunities in Japan of late, and the market has been relatively strong. The economy appears stronger than it has been in a while, and the country’s businesses look to be in the middle of major changes in how they approach corporate governance and shareholder returns. Tell me a bit about what you encountered while you were traveling there.

Mandana: What I was most surprised about was the dynamism in the market. I wasn’t expecting that. And the big change seemed to be inflation—everybody was talking about inflation, whether it was the companies or consumers we came across. Obviously, the rates of inflation are very different between Japan and the United States, but unlike in the United States, in Japan companies seemed to be happy about it because it has allowed for differentiation in goods and services beyond just pricing, and consumers were accepting the price increases. So, a company can try to differentiate on another factor beyond just price, which has been a big market driver for 20+ years, such as quality, innovation, etc.

Japanese Consumer Prices Are Finally Rising