Reporter: Karl Roman-Miller
July 14 2015
On the 14th of July, Scott Gilchrist, Portfolio Manager of the Japan Fund at Platinum Investment Management Limited, came to give a talk on the Japanese economy, its corporate culture and equity markets, as well as his company’s performance in the area.
The Japanese economy has seen a small uptick in recent years, in part due to the careful fiscal policy of the Japanese Ministry of Finance. Putting aside talk of “Abenomics” or its “Three Arrows”, Mr Gilchrist cut to the point in saying that “the Ministry of Finance wanted a low yen. It now has that.” The low yen, Mr Gilchrist reiterated, has now made Japan globally competitive against other – specifically Western – nations. However, on a pure cost basis Japan remains unable to compete with China or other Asian countries such as Thailand. Nevertheless, Japan’s strengths were described as lying in its capacity for the design and production of high-end consumer goods and technology, for which even the Chinese domestic market is eager.
Within Japan, struggles remain in trying to bolster domestic confidence in the share market. Most companies and households hold the majority of their assets in cash or government bonds, as even twenty-five years on from the Japanese asset price bubble of the late 1980s and early 90s people remain largely sceptical of equity investments. Japan Post was cited as a prominent example – a corporation with over $2 trillion dollars in assets, only $13 million of which (0.00065%) are held in the form of equities. This has meant that the economic problems that Japan faces are as much psychological as they are practical. Speaking of the enduring effects of the Japanese market crash, Mr Gilchrist stated, “When you have a bubble, it’s almost a generational issue before market participation recovers […] and at the bottom of bear markets are these types of valuations, where everybody’s given up on equities.”
In response to this environment, the investment strategy of the Japan Fund was described as being guided by psychological insight into “herd behaviour” as it relates to the market, and by on-the-ground expertise gained from exploratory visits to Japan and its companies. Speaking generally, the Japanese corporate sector was described as being full of “latent potential”, with inefficiency and a hesitant corporate culture being the main obstacles, but “ones which they are trying to cut through”. When asked about possible changes in corporate values in Japan with a specific reference to the role of women in business, Mr Gilchrist was frank in his assessment: “Female participation in Japan – and this is from the UN – is worse than Saudi Arabia at various levels.” Corporate reform in Japan was instead described as being more concerned with rationalisation and streamlining, through the shifting of manufacturing overseas, and in attempts to bypass the complex Japanese system of distribution and trading companies via online services.
Nevertheless, old habits die hard, Mr Gilchrist related, describing his surprise on a recent visit to Japan where he found people were being employed at one business to cut the company front lawn with scissors, in a scene he likened “to the sorts of things they did back in the 1980s”. Japan’s future, therefore, remains locked in a struggle between the old ways and the new.
Previous Event Reports :
From Exchange Student to Executive VP - June 2015
2015 University Awards - May 2015
Rugby World Cup 2019 - Nov. 2014
Food Safety and Security - JAEPA July 2014
Tohoku - 3 Years On - March 2014
Nikkei Australians- November 2013