Evan Tindell, the founder and chief investment officer of Bireme Capital, has approximately 40% of his assets invested in Japanese mid- to small-cap stocks. Tindell joins Catalysts to share his perspective on the opportunities within this market.

Tindell advises investors to focus on the valuations of individual companies rather than solely relying on the actions of their respective central banks. This strategy has led him to identify "the biggest opportunity in Japan." Despite Japan's inflationary environment mirroring that of the United States, Tindell believes the Bank of Japan is "likely to normalize rates over a longer period of time." However, this doesn't change his outlook on the potential of Japanese stocks.

As more Japanese companies shift their focus toward catering to shareholders, Tindell sees catalysts emerging in the form of share buybacks, dividend payments, and, eventually, the "opening up" of the market "for corporate control."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

You have 40% of your assets invested in Japanese mid to small caps which I'm fascinated in for a us audience of retail investors, explain to me how the movements from the boj are playing into your broader in that investment thesis and what that might look like.

Yeah, I mean, honestly, my my biggest advice for uh for retail investors and investors generally is to pay less attention to, you know, quarter to quarter moves by the Bank of Japan or any central bank and really focus on uh you know, the valuation of companies and you know how the corporate governance is changing or improving uh in a given market and, and that's where we see the biggest opportunity in Japan.

Yeah, I mean, I guess if you could speak a little bit more about this, just the fact that we didn't really get any details or specific timeline is that something that's going to likely keep the market there, I guess a bit volatile until we get more clarity.

Uh Yeah, possibly, I mean, you know, you see across the world short term traders kind of focusing on the machinations of in the UF the fed in, in Japan, it's the Bank of Japan.

I mean, I think over a longer term period with Japanese inflation sort of consistently at the 23 4% levels or similar to what we have in the U SI, think they're likely to normalize rates over a, over a longer period of time.

And um you know, but it doesn't change the fact that we, we still see uh pretty big opportunities in, in Japanese stocks more from just the the undervaluation of them rather than any sort of dependent on dependence on interest rate moves.

So, I mean, the show is called, this is the place to use the word to trigger that upside move.

When you talk about this bull market of reason to be optimistic here in Japanese equities, what's driving that or what will be the driver.

So, um you know, ever since Abe came out with corporate governance reforms in 2014, there's been sort of a growing movement for Japanese companies to, to care about shareholders really.

Um but the South market has really done nothing.

I mean, you look over a 30 year period and the the topic, you know, had a 2% annual return up up until the end of 2023.

Um But under the hood, we we see companies with more independent directors, more buybacks, more dividends and just an increased responsiveness to to shareholders in general, not to mention increased responsiveness to uh stock prices like there, there was an article in the Financial Times a few months ago where these days co companies who stock trade at below book value up to when they see the head of the Tokyo Stock Exchange on the golf course, they have to actually apologize to him for how poorly their stocks are doing.

And that just kind of speaks to the, you know, increased, uh, concern that, that management teams have about stock market valuation.

So the catalyst is buy back dividends and actually uh eventually opening up of the um the market for corporate control, which just means which is kind of code for private equity firm.

I mean, you just aren't gonna have uh a whole swath of companies trading at, you know, 78 times ebit for a long period of time if private equity firms are allowed to come in and um and, and buy them up and, and you see just this week black film announced a tripling of their um Japanese uh deal making to about $10 billion.

So we think that could be a big catalyst going forward.

Well, I'm interested in, I mean, I love the golf course example.

That's hilarious, but I am interested also in whether or not the Boj is kind of over focusing on the inflation picture here in the US because there are two very distinct groups of, of challenges between the two central banks.

Do you have a sense that the Boj is over focusing on US data.

And is that a potential headwind for your thesis?

Uh No, I don't think so.

I mean, uh Japanese inflation data is, uh you know, I think roughly similar, you know, 23 4%.

Um I think over the long term, like differences with that in the, in the US uh US data is not um not gonna really impact, I mean, when, when you're buying stocks, you're, you're buying a stream of earnings that's 5, 1020 years out, even though everyone likes to, you know, sort of focus on the, the quarter to quarter moves.

Um, and interest rate, we think the, the, the more fundamental change in Japan, uh, is not any move in interest rate but these changes to corporate governance and sort of the, the entry of global private equity firms that are really gonna drive, uh, the stock market forward and is independent from anything that's happening in the US.