First Eagle Investments Says a Revival in “Animal Spirits” Has Created Opportunities in Select Japanese Equities

The investment manager, which has invested in the Japan for more than three decades, is encouraged by improvements in Japan’s economy and corporate governance standards

Hong Kong/Singapore/Japan, 6 June 2024 —First Eagle Investments (“First Eagle”), an independent, privately owned investment management firm headquartered in New York with approximately $138 billion in assets under management, believes a healthy revival of “animal spirits” in Japan has boosted the economy and helped support the equity investment case for a range of high-quality Japanese businesses. Further, First Eagle thinks material improvements in the country’s corporate governance practices—including stock buybacks, higher dividends and the appointment of independent directors—suggest stocks may find long-term structural support even after the current cyclical tailwinds subside. Selectivity remains essential, however.

“It appears that easy fiscal and monetary policy may have finally enabled Japan to overcome decades of economic malaise, presenting attractive opportunities for managers experienced investing in the country,” said First Eagle’s Global Value team Co-Head and Portfolio Manager Matt McLennan at a media roundtable in Tokyo. “While Japanese equity markets have posted strong gains over the past 18 months, the TOPIX remains below its 1989 peak in US dollar terms and continues to trade at a discount to US equities. With recent index performance driven primarily by larger constituents, meanwhile, a range of eclectic, high-quality stocks continue to be available at a discount.”

“The improvements in corporate governance best practices have translated into greater focus on shareholder value, which should make Japanese equities more resilient to cyclical changes and helps support our constructive long-term view of the Japanese market,” said Portfolio Manager Christian Heck. Portfolio Manager Al Barr added a few examples: “Notably, we are seeing a number of dominant players in their respective markets tapping into their robust cash positions to buy back stock. These includes companies in sectors such as ice machines, high-end bicycle components and electronic equipment.”

Positive macroeconomic momentum has enabled the Bank of Japan to begin charting a course toward more sustainable monetary policy settings after many years of extraordinary accommodation, including the elimination of both negative interest rate policy and yield-curve control. Policy remains highly accommodative, however, and First Eagle believes there is still much more to be done, including additional rate hikes and an unwind of the BOJ balance sheet. Fiscal measures are needed as well; Japan should look to rein in its fiscal deficit, gradually increase consumption tax and stimulate labor force participation through transfer-payment reform. The economy also would be well-served by targeted efforts to improve productivity, including allowing for greater skilled immigration, providing incentives for merger and acquisition activity, and deregulating the labor market.

While constructive on Japan, the Global Value team acknowledges that risks to the country’s outlook are complex. Global financial markets appear to be pricing in a low level of risk aversion, and their reaction to an adverse event—if the US soft-landing scenario fails to play out, or global sovereign debt concerns promote a broad repricing of government paper, or if any one of the military hotspots worldwide ignites into broader conflict—could be swift and significant.

Amid these risks, First Eagle believes that Japan continues to be an attractive destination for investors seeking international portfolio diversification through exposure to its many high-quality, attractively priced businesses.

About First Eagle Investments

First Eagle Investments is an independent, privately owned investment management firm headquartered in New York with approximately $138 billion in assets under management as of March 31, 2024.1 Dedicated to providing prudent stewardship of client assets, the firm focuses on active, fundamental and benchmark-agnostic investing, with a strong emphasis on downside mitigation. With a heritage dating back to 1864, First Eagle strives to help clients avoid permanent impairment of capital and earn attractive returns through widely varied economic cycles. The firm’s investment capabilities include equity, fixed income, alternative credit and multi-asset strategies. For more information, please visit www.firsteagle.com.

¹The total AUM represents the combined AUM of (i) First Eagle Investment Management, LLC, (ii) its subsidiary investment advisers, First Eagle Separate Account Management, LLC, First Eagle Alternative Credit (“FEAC”) and Napier Park Global Capital (“Napier Park”), and (iii) Regatta Loan Management LLC, an advisory affiliate of Napier Park. The total AUM includes $1.7 billion of committed and other non-fee-paying capital from FEAC, and $1.8 billion of committed and other non-fee-paying capital from Napier Park.

The opinions expressed are not necessarily those of the firm and are subject to change based on market and other conditions. These materials are provided for informational purposes only. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Any statistics contained herein have been obtained from sources believed to be reliable, but the accuracy of this information cannot be guaranteed. The views expressed herein may change at any time subsequent to the date of issue hereof. The information provided is not to be construed as a recommendation or an offer to buy or sell or the solicitation of an offer to buy, hold or sell any security. The information in this piece is not intended to provide and should not be relied on for accounting, legal, and tax advice.

Risk Disclosures: All investments involve the risk of loss of principal.

A principal risk of investing in value stocks is that the price of the security may not approach its anticipated value or may decline in value. “Value” investments, as a category, or entire industries or sectors associated with such investments, may lose favor with investors as compared to those that are more “growth” oriented.

There are risks associated with investing in securities of foreign countries, such as erratic market conditions, economic and political instability and fluctuations in currency exchange rates.

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