[CC may contain inaccuracies] We think there's plenty of momentum in the Japanese market because even after
the strong year it's had this year, the market still pretty cheap.
The PE on average, not that it's something that we hang our head on is
still between 14 and 15 compared to the U.S., which was more like 2425.
You have the Tokyo Stock Exchange, the TSE being the most aggressive activist
in Japan and having made some very significant changes in the fact that a
fair amount of revaluation through companies buying back stock, doing
embargoes or increasing dividends. And you also have a a very strong
economy that's been boosted by a weak yen.
So if you go back further than, you know, recent developments, if you go
back, say, 12 years, Dalian was at under 80, it was a 78.
I just I just happened to look it up and it's taken all this time and this amount
of depreciation and declining interest rates to get the economy going again and
to get some inflation as opposed to disinflation back in the economy.
So it's hard for me to believe that the Japanese that the BOJ would do something
abrupt, even though we know has a habit of being surprising.
But still, with wage talks, mostly in the spring and April or so, I would
think that nothing will happen and that they will take a slow course towards
changing the level of interest rates, not just with a surprising but always on
to right and not surprising. We're seeing the markets really hedging
this chart on the Bloomberg showing that traders are paying the most to hedge yen
volatility at least since the summer when we saw the BOJ's policy tweak.
But to your point on how the Japanese yen and the weaker currency has really
supported the markets, not to mention those inflationary pressures, given that
we may be pricing in a change from the biology at a time when the Fed's
pivot is towards rate cuts. What is the risk of a stronger yen
really a dampening the markets in 2024? So
I think that the stronger yen will certainly dampen the growth prospects
for exporters. But at the same time, it will make
cheaper imports that they need for materials.
So it's not as though it's all bad. But on balance, I would say it's not
good for growth. And at the same time, there's a
mitigating factor, which is that if you look at most Japanese companies,
financials, they've actually factored in dollar in weaker than Bert or actually
Yen, stronger than where it is now. And when we do our calculations for
where we think the companies will still do well we have a lot of room from where
it is to appreciate buy you know ten ¥15 without doing too much damage to the
company's prospects. You know, on the margin, it won't be
good for exporters, but it's not something that will derail the growth in
the economy. MG Another Asian currency that has been
really pressured lately has been the Korean one, right around 1300 levels at
this point. How much has that helped the Korean
market and could we expect more upside in 2024?
We're quite bullish on the Korean market, which I know is not a common
view. But to us, Korea is very much like Japan
was, say, you know, with a two, three year lag in terms of its efforts to make
its market more attractive to foreigners.
So that used to be the case like this. That is the case, but it's transitioning
where as a foreign investor in Korea, you had to get
registered with their financial authority first.
You couldn't do your own effects except with the local banks.
You had to pay taxes on, you know, things that typically a foreign investor
would be exempt from. And most of the Korean companies would
have their reports in Korea and not in English.
And recently, they've changed everything that I've mentioned.
So that is more attractive and easier for foreign investors to get into Korea.
At the same time, the Korean market is extremely cheap as great companies are
ignored because the chaebols these are conglomerates.
And similarly to Japan, the biggest holder of Korean stocks in Korea is the
National Pension Service, which has every vested interest in improving the
returns on Korean stocks because they have to get better returns to pay the
pensioners who are aging as well. So there are many reasons to think that
Korea will follow the path of Japan in having better governance on their
companies, which will make the stocks more attractive to foreigners.
So I believe that there is plenty of upside, and we're just seeing the
beginnings of the changes that will make a significant impact on career.
Baluta You mentioned the tables. Are you seeing more reform on that front
with those conglomerates having very complex holdings of their company
structures? We are.
It's you know, you have to look at it singly
one by one. We think that ASC has actually moved
quite a far made quite a significant headway towards improving their
structure. And we've even been invited to talk to
their management about how they should position the company so that they're
more attractive to foreign investors. So it's happening, it's happening slowly
and it's probably going to take many, many years, but I do think it's going to
happen.