Investing in Japan: A Strategic Move for Family Offices

Investing in Japan: A Strategic Move for Family Offices

Japan's equity markets have recently garnered significant attention from global investors thanks to favorable performance, geopolitical shifts, and structural changes in global supply chains. Emerging managers focusing on investments in Japan, particularly those leveraging buyout and activist strategies, find themselves in a promising position to capitalize on a market increasingly prioritizing shareholder returns.

Structural Advantages and Valuations

Japan's economic landscape is characterized by a complex interplay of low-interest rates, a relatively weak yen, and robust export growth. The BOJ's reluctance to tighten monetary policy in response to rising inflation has had a mixed impact, supporting export and overseas earnings through a weaker yen.

While the allure of Japanese equities is often framed around the notion of "cheap" valuations, a deeper analysis reveals a more nuanced picture. Equity valuations, when normalized, are not as low as some might expect, yet they still offer attractive opportunities relative to global equities. The expectation of sustained equity outperformance hinges on several macroeconomic and financial factors, including currency stability, inflation control, and foreign investment flows.

The Edge of Emerging Managers in Japan

Japan's market structure, characterized by many undervalued, smaller companies, presents a ripe environment for active management. The Tokyo Stock Exchange's implementation of new governance rules aims to enhance corporate governance and shareholder value, paving the way for activist strategies and buyout opportunities.

Emerging managers, especially those with the agility to navigate Japan's complex market environment, stand to benefit from these shifts. Strategies focusing on undervalued companies with solid balance sheets, or those poised for corporate restructuring and succession-driven deals, are in high demand from our capital providers. Also, the anticipated long-term appreciation of the JPY and Japan’s strategic role in diversifying global semiconductor supply chains further bolsters the case for focused investment in Japanese equities.

Leveraging Active Management for Superior Returns

The potential for active managers to outperform the market in Japan is significant. This outperformance is partly attributed to the lower analyst coverage in Japan, leading to market inefficiencies that skilled managers can exploit.

Japan's equity market's real opportunity lies in its lesser-known corners, where smaller, illiquid companies present attractive valuations. Recent regulatory changes to enhance corporate governance and shareholder returns have opened doors for targeted investment strategies, such as activist investments and buyouts.

High Demand from Institutional Investors 

With their specialized focus and innovative strategies, emerging managers are well-positioned to capitalize on opportunities in Japan. Their ability to identify undervalued assets and drive shareholder value through active engagement makes them attractive options for family offices looking for exposure to Japan.

At Ashton Global, we recognize the potential of Japan's equity markets and seek emerging managers specializing in this arena. Our focus is on identifying talent capable of navigating the complexities of the Japanese market, leveraging strategies that benefit from the current economic and regulatory landscape.