Japan companies hog the spotlight as hedge funds tout their top Asia picks

By Thomson Reuters May 24, 2024 | 1:19 AM

By Summer Zhen and Xie Yu

HONG KONG (Reuters) – Japanese stocks were in focus at a hedge fund conference this week, accounting for most of the top Asia investment ideas as asset managers highlighted Japan Inc’s efforts to improve capital efficiency as well as the record run for Tokyo shares.

At the annual Sohn Hong Kong Investment Leaders Conference which invites 14 funds to pitch their top investment ideas, Japanese companies in outsourcing, robotics and the drug sector were in favour. Only two funds pitched ideas on Chinese stocks, down from seven in 2023.

The biggest opportunities in the world’s third-largest economy are in companies with “improving stories” or are bolstering corporate governance, rather than firms that are already excellent, according to David Mitchinson, founding partner at London-based Zennor Asset Management.

Mitchinson recommends Transcosmos which provides outsourcing services and is likely to benefit from Japan’s tight labour market. The firm’s growth has slowed but it has shown willingness to improve capital management such as its plan to cancel treasury shares, he added.

While Japan has been bolstering governance for at least a decade, the effort got a big shot in the arm last year when the Tokyo Stock Exchange called on companies to improve capital efficiency. The bourse now publishes a monthly list of firms that have voluntarily disclosed plans to improve their use of capital.

Also helped by a weak yen, the benchmark Nikkei has surged 50% since the beginning of 2023, hitting a record high in February this year.

Japan’s government continues to raise the bar for management, so “investors who engage with Japanese companies have a lot higher chance of winning than ever before,” Seth Fischer, founder of activist fund Oasis Management, said in an interview ahead of the conference.

The fund sees upside potential for Kobayashi Pharmaceutical, a drugmaker which recently recalled a health supplement after five deaths possibly linked to the product. Fischer told the conference the stock could climb if there was improved crisis management or if it went private.

Oasis could step in if there was no “self-improvement”, he said, without disclosing if Oasis has shares in Kobayashi.

Hong Kong’s Tybourne Capital Management said it is betting that Samsung Electronics can grab global memory chip market share from rival SK Hynix, which has much production capacity in China that it might not be able to make full use of amid geopolitical tensions.

CloudAlpha Capital Management, also from Hong Kong, is bullish on South Korea’s HD Hyundai Electric, citing AI-linked demand for electricity equipment.

(Reporting by Summer Zhen and Xie Yu; Editing by Edwina Gibbs)