Why retail investors and institutions are now investing in Japan with these stocks outperforming Chips

Jessica Amir joined discussion · 17 hours ago

Why retail investors and institutions are now investing in Japan and will continue to so; as a place for global investors to turn for diversification

We have seen global portfolios allocate greater assets to Japanese equities and this will continue over the longer term as corporate governance and company profitability has significantly improved. And this is all underpinned by its economy's recovery (the Japanese economy is expected to grow 0.2% in 2024, 1.2% in 2025 and 0.8% in 2026, according to Bloomberg).

Earlier this year we saw the world's most famous investor Warren Buffett put Japanese equites on the map. But I think this could be the beginning.

Buffett alluded to there not being any compelling investment opportunity outside of the US, and yet we saw Buffett take a 9% stake in each of Japan's top five trading houses, of which he will likely increase his stakes in as they're still undervalued according to Bito Financial. The five trading houses made Berkshire $8 billion, or 61%, by the year end of 2023. That said When Buffett said there are “no candidates that are meaningful options for capital deployment at Berkshire [outside of the US]”, he was referring to the future investments. That doesn't mean he won't increase his stakes in his Japanese assets.

This highlights that Japanese equities remain compelling.

Separately, we also know that the US, Japan and Canada are leading the pivot and drive to become clean economies. And this is another reason why foreign investors will look to Japan for its ESG policy as it wants to move to nuclear energy by 2030

I also think Japanese equities are still flying under the radar to most international retail investors, and most investors might not be aware that Japanese stocks are producing better returns than the S&P500. Everyone knows the US market is being somewhat been fueled by bilaterial government AI stimulus (US and EU US$84 billion AI stimulus) and Mag-7 investment. But it seems Japanese equities could be seen as undervalued as their economyis growing quicker than expected. But backing the right companies is key. Just look at the returns in the Nikkei 225 vs the Nasdaq 100. Mitsubishi Heavy Industries $Mitsubishi Heavy Industries $Mitsubishi Heavy Industries(7011.JP)$ for example has outperformed a lot of tech companies in the US

You could look at the below and ETFs such as iShares MSCI Japan AUD ETF $iShares MSCI Japan ETF (AU)(IJP.AU)$