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Four Seasons Asia predicts Godzilla moment will create positive change in Japan

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Four Seasons Asia, a long only and long/short investment house focused on Japan, is to launch a Japan-dedicated UCITS fund.

Four Seasons was created in 2006 by CEO Shigeka Koda and Managing Director Kahori Ando, who both also act as Co-Chief Investment Officers, and have more than 50 years of investment experience in the space between them. Shigeka Koda spent 14 years at Goldman Sachs prior to founding Four Seasons, where he was Japanese Equity Senior Portfolio Manager.

Kahori Ando spent 12 years at Sparx Asset Management before joining Four Seasons, latterly as Japanese Equity Senior Portfolio Manager. The firm is based in Singapore.
The firm’s long/short fund was launched in 2007 and the long only in 2010. The firm now believes that Japan is set for a massive relaunch as an investment destination, after almost 30 years of what Koda describes as ‘neglect’ from global equity markets, despite its equity market being the third largest globally in terms of market capitalisation.

The firm focuses on uncovering alpha and runs what Koda calls a benchmark agnostic strategy. Japan’s two main problems, Koda says, is deflation and lack of growth and change and it is these two major issues that he and his team believe are changing.

He quotes the example of Yamato Holdings, a leading Japanese delivery service provider, which in Japan, takes care of almost half of Amazon’s parcel deliveries.
“Yamato has never changed its price in 30 years because of deflation,” Koda says. “They think the best customer service is to lower the price. But last year they reached a tipping point where a truck driver shortage happened and Yamato could not afford to do its business.”

The result was that they visited Amazon and requested a price increase of 40 per cent – the first price increase in 30 years.

“This was a shocking event and Amazon had no choice but to accept Yamato’s proposal which made everyone in Japan realise they can take advantage of the labour shortage to normalise the price level,” Koda says.

The minimum wage in Japan is said to be 30 per cent lower than in France, Germany or New York.

“That’s how the price level has stayed lower but a lot of business players cannot afford to do this anymore unless they change the price because of the labour shortage. Deflation will be over – ending because a growing number of business players try to increase the price.”

Koda also observes that the labour shortage gives corporate management a wake-up call to think for themselves because they have to do the same things with fewer people.
“It’s the first time for us to see that growing number of corporate managements are using their brains effectively so management is changing,” Koda says. This is producing what he calls ‘a Godzilla moment’.

“We believe that this is a ‘Godzilla’ moment for Japan when all these mega-trends combine to create massive changes and major opportunities for experienced Japan investors.”
The team takes a bottom-up approach and looks at companies in less crowded markets, often mid-small cap ones. These are often firms which are under-researched and are more impacted by rapid change.

“Our philosophy is to capture the impact of this change at a discount. But although we have a mid-small cap bias, this is not a small cap strategy, we will trade larger firms when there is merit in doing so. We are patient investors who scrutinise stocks from a short-term, mid-term and strategic perspective and simultaneously employ sophisticated risk management to protect against potential downside risk,” Koda says.

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