Back to basics
The US economy is slowing down, as evidenced by last week’s jobs report, which severely underwhelmed forecasts with 12,000 jobs instead of 200,000 created last month and revisions down from previous months. President Biden attributes this to the recent hurricanes, which may have impacted the labour market negatively but should only have been in selected areas. Suppose Trump wrecks the economy with tariffs, choking imports and creating domestic wage push inflation. In that case, it will likely be stagflationary, which should ultimately bring the USD down in terms of time and rates.
Strong domestic-focused businesses in large economies may be better bets in this environment than globalised companies dependent on trade like Samsung, which dominates the Kospi index (hence Chew On This 1161 was lukewarm to it). Even though Nvidia (which SoftBank’s Masayoshi Son just claimed is undervalued and will be worth 10 times more) has replaced fallen tech angel Intel Corp on the Dow Jones Index, we might indeed be on the verge of (another hyperbolic Son call) Super AI Boom; I still prefer assets that are backed by secular themes like data centres and logistics. In any gold rush, the folks who sell the pick axes are guaranteed to make money.
In the last week in Singapore, two boring stocks Chew On This covered in 2023 that were trading well within their net asset value found new life. Hongkong Land Holding’s strategic pivot from development into asset management — sounds like a leaf from CapitaLand and Keppel’s playbook. As cap rates improve with forward rates more favourable, a long-awaited REIT from the Jardine subsidiary or two may be on the cards. At a 60% discount to net asset value (NAV), its stock price has rightly started a re-rating. Similarly, as beauty appears to be in the eye of a Saudi Arabian beholder who has made a non-binding offer for some of Olam Group’s businesses, the sum of its parts should also be worth more than the market price today if the value is realised through a sale or an overdue separate listing. It, too, popped more than 10% on the announcement.
Minority rule
Perhaps we may take the lead from Japan. Just before I arrived, the ruling Liberal Democratic Party (LDP) lost a snap election of its calling. This made my trip a little cheaper as the yen fell back from 110 to 115.5 for each Singdollar since my last trip a month ago. As the Bank of Japan (again) threatened to intervene, including raising interest rates, the Nikkei 225 largely held its own without too much of a wobble, still steady above 38,000 points.
It appears business and life marches to its own beat from the many conversations I had on the ground in Tokyo and observations of the multiple new office building construction sites around Nihonbashi and Manouchi. Our airport pick-up was another Chinese national staying in Japan to work after studying. According to him, the economy could be better but was moving at a steady clip way above China with both domestic confidence and foreign interest — in real estate, for example. Tourism and hospitality are doing very well thanks to the cheap yen, and we even have Singapore funds developing ski resorts in Nagano.
My former colleague who used to run our Japan office explained that the LDP was expected to lose anyway, but the fragmented opposition could not form a government. So, the result was as underwhelming as the lack of public interest and participation. Indeed, his daughter encapsulated the younger folks, who had no interest in politics, did not vote and were not troubled about an LDP minority government being in charge. Her father mused that this could force a change in the politics and policies of a gerontocracy.
Irrespective, nominal inflation in prices and wages is forcing adjustments, including retirement savings and younger professionals alike, to deploy into investments, benefitting the stock market. I hear of both old securities companies that are finally profitable, either looking to sell at a premium (unheard of for decades) or looking to invest out from Japan into Southeast Asia. And while we know that it takes ages for big businesses to move in Japan, it was heartening to hear of an impending potential data centre REIT listing in Singapore next year — a fruit of labour from an initial pitch made seven to eight years ago.
The Tokyo Stock Exchange’s push for Japanese-listed companies to create value and governance reform matched with domestic, and since 2023, foreign capital appears to have more room to run. Japan’s increasing openness to foreign capital, labour and trade is giving a new spring in its steps. It has a large enough domestic market to support its industrial companies who suffer from Galápagos syndrome — many goods it develops and sells go no further. As the Chinese economy stabilises, Japan’s once booming export market may be revived as it makes inroads into India and Southeast Asia.
With all the positives, I expect the yen to rally in 2025 as the USD falls, lending strength to equity market returns. Should any financial or geopolitical volatility from the many bonfires that could arise from the new shogun in the White House or the Middle East and Ukraine, the yen will strengthen, and carry trades will unwind.
I return from Hakuba comfortable with my small allocation to Japan via the SGX-listed Lion-Nomura Japan Active ETF — open enough for growth but big enough, as it is the 4th largest economy globally, to be an island unto its own if all else fails.
Chew Sutat retired from Singapore Exchangeafter 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange and he was awarded FOW’s Lifetime Achievement Award. He serves as chairman of the Community Chest Singapore
