April 22nd-28th 2023 Ukraine’s game plan
Development finance is getting bigger
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| Development finance is getting bigger.
It needs to get bolder, too Unfinanced territory Share of portfolio investment by region, December 31st 2021, % Sources: Association of European Development Finance Institutions; US International Development Finance Corporation *September 30th 2022 Investment portfolio, $bn ↓ Norfund (Norway) FMO (Netherlands) Proparco (France) DEG (Germany) BII (Britain) DFC (US)* 100 75 50 25 0 2.9 8.9 9.4 9.9 10.7 10 7 36.5 Other and multi-country Europe and Central Asia Middle East and north Africa South and East Asia Sub-Saharan Africa 012 67 The Economist April 22nd 2023 Finance & economics S hares in three of Japan’s five largest trading conglomerates reached record highs over the past week, following an announcement by Warren Buffett that he is keen to own more of their stock. It is just the latest good news for the firms. Itochu, Marubeni, Mitsui, Mitsubishi and Sumitomo Corporation have surged in value since Berkshire Hathaway, Mr Buffett’s investment firm, announced its first purchases on his 90th birthday in 2020. Since then, their share prices have risen by between 64% and 202%. In some ways Japan and Mr Buffett are a match made in heaven. Mr Buffett is famed for his unerring focus on business fundamentals. Even after a recent selloff in American stocks the broad Tokyo market is still far cheaper. Its priceto earnings ratio (based on expected earn ings over the next year) is around 13, compared with 18 in America. The trad ing firms Berkshire Hathaway has in vested in—known in Japan as sogo shosha —are often seen as stodgy and reliable. All have pricetoearnings ratios of below ten and pay healthy dividends. Berkshire Hathaway’s Japan trade is revealing in other ways, too. It illustrates why the country may become a more appetising destination for other Amer ican investors. On April 14th the in vestment firm issued around $1.2bn in yendenominated bonds, adding to the $7.8bn it issued from 2019 to 2022. Not only is Japan now Berkshire Hathaway’s secondlargest investment location—the yen is also its secondlargest funding currency. Even before the recent issu ance, nearly a fifth of Berkshire Hatha way’s debt was denominated in yen. The company is not borrowing be cause it is short of cash. Rather, the trade reveals the advantages of currency hedg ing. Borrowing as well as buying in yen protects Mr Buffett from falls in the cur rency’s value. And as a result of the gulf in interest rates between America and Japan, he can finance his investments using longterm loans charging less than 2% annually, while keeping his spare cash at home invested in government bonds earning almost 5%. Mr Buffett has ques tioned the merit of currency hedging in the past. Its appeal today seems to be irresistible. Borrowing in yen is so cheap relative to doing so in dollars that the trade is a nobrainer for investors with even a passing interest in Japanese stocks. Of course, not every such investor can easily issue yendenominated bonds. But those who cannot may exploit the mone tarypolicy gap with more straightforward currency hedges. Prices in forward and futures markets are determined by the difference in interest rates between the two economies in question. The surge in American but not Japanese interest rates over the past 18 months means that Japa nese investors are paying an enormous premium to buy American assets and protect themselves from currency move ments. American investors get a rather lovely premium when they do the same in the other direction. The yen currently trades at 134 to the dollar, but currencyfutures maturing in March next year give investors the op portunity to sell at 127 to the greenback. That locks in a 5% return over little less than a year. The only cost is that the buyer must hold yen for the whole per iod. For investors who want to own Japanese stocks, the return to hedging is essentially a bonus. The opportunity looks unlikely to disappear. Even if the Bank of Japan abandons its yieldcurve control policy, few analysts expect a big rise in Japanese rates. The potential benefits are large. Over the past year, the msci usa index has provided net returns, including capital gains and dividends, of 5%. The msci Japan index, unhedged but in dollar terms, provided a return of 1%. The msci Japan Hedged index, based on the re turns of Japanese stocks employing onemonthrollingcurrency forwards, is up by 12% over the same period. It is probably only because of the enviable returns to American stocks over the past decade or so that more investors have not taken advantage of the Japanese bonus. But big names are beginning to jet to the other side of the Pacific. Elliott Management, an activist investor, has been rewarded for its intervention in Dai Nippon Printing. The company’s shares have surged by 46% this year. Mean while, Citadel, an American hedge fund, is reportedly reopening an office in Tokyo, having stayed away for the past 15 years. After a period in which the Japa nese market has quietly offered solid returns, the example of Mr Buffett and other giants of American finance might draw a little more attention. Of price and yen Yüklə 5,71 Mb. Dostları ilə paylaş:
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