‘Pick Japanese companies that are improving capital efficiencies over high growth stocks’

He also tells IGTV’s Angeline Ong which Japanese stocks are likely to outperform in 2024 as inflationary pressures finally seep back into Japan’s economy after decades of falling prices.

(AI Video Summary)

Discussing the future of the Japanese stock market

In this video, Masaki Taketsume, fund manager of Japan Trust at Schroders, talks about the future of the Japanese stock market. He explains that Japan is different from other parts of the world because it is experiencing inflation and interest rates have gone from negative to positive. This is good news for Japanese stocks. While some investment companies think that stocks in Europe and the US are undervalued compared to Japanese stocks, Taketsume disagrees. He believes that improvements in corporate governance in Japan have led to better profits for companies. However, he also points out that the price to book ratio, which shows how much investors are willing to pay for a company's assets, has only increased by 20%. This means there is still room for Japanese stocks to grow.

Taketsume agrees that Japanese companies need to improve their balance sheets and how they use their money. He gives an example of Toyota, which plans to change the way it owns shares in other companies. This will make Toyota's balance sheet more efficient. Taketsume also talks about the importance of finding companies that can set their own prices. He uses the example of Kyorichi Maintenance, a small company in the hotel industry.

Caution against high-growth stocks

When it comes to stocks that are not performing well, Taketsume is cautious about ones that have been growing a lot and have high values compared to their earnings. These stocks might have a hard time if inflation and interest rates go up. Taketsume also explains that Japan has a practical approach to environmental, social, and governance (ESG) issues. Instead of making sudden changes to renewable energy, Japan is gradually shifting from coal-fired power plants to cleaner ones. Overall, Japan is somewhere in the middle between developing countries and leading ESG countries in terms of its approach to these issues.

In conclusion, Taketsume thinks that Japanese stocks have a bright future because of inflation and improvements in corporate governance. He believes that companies with pricing power and those that are working on their finances will do well. However, he cautions against high-growth stocks and explains Japan's practical approach to ESG.