Japan’s booming economy bodes well for stable start-up investment.
For the past number of decades, overseas investors had fallen out of love with Japan. When it came to building global portfolios, most of them tended to be largely underweight Japan. As discussed in our other blog post, this is somewhat curious given that over half of TOPIX companies are net cash. However, it would seem the tide is turning with investors impressed at how well Japanese companies are coping with the curve ball that is 2020.
In truth, many investors have taken a strong interest in Japan over the past 5 years, particularly in the private equity sector with a number of global firms establishing a Tokyo office. This is in response to Japanese corporations shedding non-profitable parts of their business, or restructuring in general to focus on their core strengths, something which they were reluctant to do in the past. We have seen big restructuring from household names like Hitachi and Toshiba to name but a few in addition to Shiseido, Suntory and NTT making significant overseas investment. All of this bodes really well if you’re a private equity investor as opportunities are now aplenty and this trend looks very likely to continue.
When news emerged in August this year that Warren Buffet had invested $7 Billion USD in Japan’s biggest trading companies (Marubeni, Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo) totalling about a 5% stake, a number of overseas investors followed suit. At the beginning of this month alone, overseas investors bought a whopping US$13.5 billion, this is the 5th largest on record for the week ending October 9th. It goes without saying that this is huge investment from overseas and with it, huge risk. Japanese listed companies are demonstrating that now more so than ever they can entice large scale overseas investment. A notable change in attitude towards the land of the rising sun.
The Japanese start-up market has seen significant investment this year. The TSE Mothers index (322 startups or smaller firms) this year is up 36% (year to date), significant gains relative to the TOPIX or Nikkei that are both trying to hold their own after the huge volatility earlier this year. In fact, earlier this year, the Mothers Index reached its highest level since August 2006. If you’re an investor with discretion over which indices you can invest in, it’s hard to look past the Mothers Index. This year in Asia Pacific, it’s the 2nd best performing index after ChiNext. As investors grapple to stay one step ahead of rapidly evolving COVID-era technology reliance, it’s worth noting that many of the companies listed on the Mother Index have already catered for the solutions to tomorrows problems.
With an exciting economy that’s proved just how robust it is during downturns, Japanese corporations are well positioned as the stable investor of choice for the global start-up community.