The Talaria Global Equity Fund beat Warren Buffett to the punch in buying cheap Japanese stock, and its CIO is optimistic on the potential for solid returns.
P/ASX 200 index and an 11.5 per cent advance for the SHugh Selby-Smith, the co-chief investment officer of Talaria Capital, says Japanese shares can still outperform on a medium-term view.
“Berkshire Hathaway may recognise that after 30 years of deflation in Japan, many companies are priced for deflation in perpetuity and so will prove excellent investments if the future for global inflation looks somewhat different than the preceding decades,” Mr Selby-Smith said.
“This has driven strong earnings growth without a re-rating in the price that investors are being asked to pay for the asset base. With modest valuations, good capital allocation, stronger balance sheets and higher earnings power, it seems natural that Berkshire took note.
Mr Selby-Smith said government reforms and tax incentives had encouraged many businesses to turn investor friendly. Price-to-book ratios, as a popular valuation metric, remain cheap in Japan compared with the rest of the world, and attractive to value investors who traditionally look to buy assets and future cash flows at a discount to fair value, known alternatively as a margin of safety.
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