YouSaid · the spoken record

Hiroshi Nakaso

lines on the record: 17
first: 2023-07-11
most recent: 2023-07-11
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“There are both external and internal risks to be concerned about. Externally, I think you've hit the nail on the head with China risk and US risk. Topics as a market is equally exposed to the US and to China in terms of revenues. So if there's a big slowdown in China or a big slowdown in the US, that will have a negative impact on the Japanese market. From a domestic point of view, the risk of policy missteps, either raising income tax or consumption tax by the Kishida government, I think that could also have a negative impact on the Japanese market. So you've got to keep your eye on what's going on globally, but also locally as well.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“Japanese standards, and they are improving their ROEs. So there's a lot going for the banks, even if you don't focus on what's happening with the BOJ. I think our expectation as a firm is that you might see a tweak to YCC at the next meeting at the end of July, but it seems clear that the new BOJ governor, Mr. Oeda, is going to take his time and look at what's happening with the sustainability of inflation and look what's happening globally with the US and recession risks there. And he's going to be very data-driven in terms of the last piece of the puzzle, which would be to normalize rates. So I think the bank trade, if you like, which was viewed as quite a short duration earlier this year, is the direction of travel and the end destination are still exactly the same, but it's probably going to take a little bit longer, I think is the best way to think about it.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“If you went back to October last year, the expectation when Mr Coroda was still the BOJ governor was that something would happen between the last six months of his tenure as BOJ Governor, I think there was high expectations that something would happen with yield curve control and also with the normalization of monetary policy. And that's what really drove the increase in bank share prices over that period. When that didn't materialize at his last meeting in March and that was combined with the sell-off that we saw in the US triggered by Silicon Valley Bank and Signature Bank, a lot of money came out of the banking sector very quickly. So at the moment it feels like positioning is quite light. Valuations are still pretty low. The banks are about 0.6 times PBR which fits in that TSE thematic quite nicely. They have dividend yields of between four or five percent which is quite high by Jack.”
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“As well. It really does feel very constructive at the moment. That is playing out in the sales numbers that we see from domestic demand-related companies as well. The ideal for Japan is that you would have this virtuous cycle of rising prices and rising wages that would keep demand strong. And so far at least, that seems to be what we have.”
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“It is very buoyant at the moment. I think if you were to go to Japan, you really would feel the difference compared with even like 12 months ago. From October, we've had Japan opened up to tourism again. In terms of inbound spending, we're pretty much back to the levels that we had pre-pandemic, even though the number of tourists that are coming to Japan is about 50% from those peak levels. So what's happening is we seem to be having higher value tourists coming back into the market and spending more per capita. Hotel rates are up. It's very difficult to get hotels in Japan at the moment. Restaurants are full. It does feel like the economy is going through a very strong demand period. And part of that is inbound tourism, but also we have wage growth with the highest levels we've had for 30 years. Prices are going up, but there's still a decent amount of accumulated savings left over from the pandemic.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“Names that are trading below book value but have the type of liquidity profile that would attract foreign institutional investors. So that's what we see into the end of the year. And in terms of how that would play out in a sector basis, it would be machinery, particularly the factory automation side of machinery, electronic components and precision, autos and banks. And those are our preferred sector choices.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, look, we are focused on a barbell strategy going into the end of the year. So the sectors that we think will move from, say, September into December on one end of the barbell, we're looking at, let's call them foreign favourites, the type of stocks that large institutional foreign shareholders like to buy in Japan. Your fast retailings, you're world leaders. They've been some of the biggest movers so far this year. And I think if you're a foreign investor coming back into Japan, it's easy to buy what you already know and what you already own. And I think that's one end of the barbell. The other end, I think, will be liquid names that are trading at a discount to book value that fit within the TSE guidelines or the TSE focus and that have a level of say quality or brand recognition. These are reasonably high quality.”
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“Yeah, if you look at the rally so far, it's really been driven by the large cap, the large constituents of topics and Nikkei. And some of these names have gone up over 100%. The SPE sector has gone up 60%, trading companies have gone up close to 50%. There's still a lot of laggards left in the market. So even though we're not looking for a huge amount of upside, I think it's possible to see some sector rotation take place as we go through the summer and as we go into the end of the year.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“So, our near term three month target price is $2,200, so downside from here, and that's based on the fact that technically I think we've had a very good run in Japan so far, and you've got to leave some room for profit taking. Seasonality topics is usually quite weak over the summer, and then in terms of catalysts, it does feel like after the annual general shareholders meeting season, which finishes this week, we're not going to have any major corporate governance related catalysts until the early autumn. So that's why we're looking for a bit of downside in the near term. But then going into the end of the year, we're looking at that to rise again to 2400, which would be, I guess, 5, 6% upside from where we are at the moment. And then our 12-month target is 2,500. So slightly weak over the summer, but then recovering into the end of the year.”
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“Either the US or Europe where the companies that trade below Burkhurst are maybe about 20, 15 percent of the market, I think it's difficult to argue that we're overvalued at this stage of the cycle. And again, if you want to focus on flows and think about previous rallies, if you look at the foreign buying of Japan from the start of abinomics to the peak of abinomics, and then you look at the buying that we've had so far this year by foreigners, we're less than a quarter of the way there. And I'm not saying that everything will go up in a straight line. It never does. And it does feel like we may have some sort of correction or pullback over the summer just given how extended the technicals are at the moment. But it's very difficult to articulate an argument that says that Japan is overbought or overvalued at this stage.”
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“Lot of what we've seen so far has been driven by multiple expansion. There is some earnings growth there, but it's single digit, but it is positive. So from an earnings-based point of view, we are probably 14 times at the moment. Average is closer to fifteen times, so we're not unusually expensive at the moment. But I think the area to focus on is not the PER, but the PBR of the market. So PBR means price to book value, price to book ratio. So it looks at the market cap of a company versus its net assets. And even now, after the rally, we've had still something 47, 48 percent of topics is still trading below book value. And that's the group of companies that the TSE is focusing its efforts on. I think until we see sub book PBR profiles similar to”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“That's a very good question. And I think if you go back and look at previous rallies, like what caused the upcycle, if you ask what caused the down cycle, in both cases it was when we started to run out of positive momentum around the thematic. So with Koizumi, he was in power until 2006, and then he resigned very suddenly, and that took a lot of steam out of the rally. And then with Abinomics in 2012 up to about 2014, 2015, the first two arrows of abinomics, so fiscal and monetary, had a big impact on the stock market. The third arrow, which was structural reform, was just a little bit more difficult to quantify and there wasn't the sort of top-down government focus that we're having currently on TSE on corporate governance and structural reform back in 2015, 2016. To answer your question, what has to happen for us to avoid this sort of petering out, I think.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“It's actually been driven by foreigners. Foreigners have been net buyers of Japan for the last twelve weeks, and that's consecutive. And that's quite an unusual length of consecutive buying to have. And we've seen this before in the past in that every decade or so we will have a period in Japan where everything aligns the right way and suddenly becomes a lot easier to make money on the long side. And the last time we had that was 2012, 2013 with Abinomics. Previously, if you go back another 10 years before that, it was when Koizumi was in power as Prime Minister and he was focused on structural reform within Japan. There's always a policy element to this. The policy changes foreign investors come back into the market and that's what starts to drive the market higher. And that's what we've seen so far this year. It really fits into that cyclical.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“Raise their dividends, buy back more stock, make themselves more attractive to retail investors so that retail participates more in the market because at the moment only ten percent of Japanese household assets are in the stock market, compared with the US where that figure is closer to 40%. So that's the challenge and that's the opportunity, I think.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“The big change this time around is that for the first time in 30 years we have meaningful inflation in Japan. Now, we've had basically 30 years of a deflationary environment in once you start to get inflation, things like wage growth, which we haven't had in Japan for twenty, thirty years, or earning income from financial assets hasn't been as important for Japanese households because in a deflationary environment your savings keep pace with the price of goods and even if your wages don't go up you're not feeling price erosion. Now that we have inflation in Japan I think the government understands that if without wage growth without financial asset income growing then sooner or later it will become a social problem so that's why the government is so focused on doing something about it and that's part of the drive towards trying to make companies in Japan”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“With on a number of occasions, but it does feel like the top-down focus not just from the Tokyo Stock Exchange, but the regulator and the government as well is very focused on trying to create a market that has better returns, that has more of a focus on corporate governance, and it's a market that looks and feels a lot more like the S&P.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT
“One of the main drivers of performance that we have seen is the fact that after a period of seven years when foreigners have been net sellers of Japan to the tune of about twenty seven trillion yen, they're finally starting to come back and readdress the underweight position that they've had on Japan. What's making them come back, I think one of the main factors has been the corporate governance reforms that have been pushed by the Tokyo Stock Exchange since January this year. The Tokyo Stock Exchange came out with a presentation in January where it laid out the fact that it wanted companies that traded below book value in Japan, so a price to book of one times or less, to boost their corporate value. It's significant because half of the market in Japan trades below book value. We're suddenly starting to see the value unlock in Japan that people have been waiting for decades to experience and have been disappointed.”
2023-07-11 · Goldman Sachs Exchanges · Why 'everything aligns' for Japanese stocks · IDENTIFIED FROM THE TRANSCRIPT