Q: What’s driving your interest in Indian and Japanese companies?
Krishna Mohanraj, CFA
India and Japan are two markets where I would say we probably had the most interest or we have the most interest, recently. As you mentioned, I've been in both those markets recently, and each of these trips, typically, we design it as about a week long and very company-focused. We spend a lot of time visiting a whole list of companies, meeting with management teams, so getting sort of an overall picture of what CEOs and CFOs, management teams think across different industries in that market, so we can put together a good picture.
And in many ways, it's funny that we talk about these two markets because they're so different. Traveling in Japan is a calm, quiet, peaceful experience — even in a busy city like Tokyo. Whereas traveling in India is an experience — it is the opposite of calm and quiet. So, they're very different places to be in.
They're also very different markets. India, in many ways, I would say, is a lot more open, a lot more shareholder-friendly place, despite what popular conception would be here. But Japan has traditionally been a lot more closed, a lot less shareholder-friendly. India is also younger and growing, and you can see that when you travel there. You can just see, just the people you meet on average are going to be in their twenties. And then, just me living in the US, going to India every time, it just surprises me how young the population is. Everybody in the service industry would be a kid essentially. So, it's growing. India is now on the verge of passing Japan to be the fourth largest economy in the world, which is massive.
So, you have a shrinking Japan and a growing India. Lots of differences, but they're similar in one very important respect. Both have tons of listed companies. And for us, that's the raw material because we are looking for bottom-up ideas that could be great investments. So that's why we love both those markets, and we probably will continue to spend a lot of time focusing on those two markets.
Now, I'll give you a brief overview on the two markets because we could easily spend the whole day talking about just one of them. So, with Japan, the thesis is very simple. It's improving corporate governance and to some extent, my trip and I traveled with our analyst, Micah Martin, so we could tag team meeting all these companies. The big focus of this trip was just to reinforce that core thesis and then look for unique ideas that are hidden gems.
In Japan, as you know, there's been years of investor, I guess a little bit of activism around improving corporate governance, and it's just been a lot of false starts. But over the last couple of years or so, we started seeing the attitudes change and that's why we stepped up. That's around the time we stepped up our interest. As a team, we've probably been there four or five times just in the last two and a half years, and we started gaining more conviction. There's a system-wide imperative to improve corporate governance. The Tokyo stock exchange itself is naming and shaming companies, which are not able to return their cost of capital, which are trading below book values. Those are the kinds of things that really make a difference in a very pure pressure-oriented culture like the Japanese. And the market is full of cheap stocks, statistically cheap stocks with capital trapped in the balance sheets. So, the real question comes down to will these things ever be simplified and capital return to shareholders? And increasingly we are seeing very positive evidence of that. And since then, we've added more ideas in Japan as well. We already own a few names in Japan, so that's Japan.
With India, the thesis is even simpler. It's the simplest thesis ever. Growth everywhere. Tons of well-entrenched businesses, well-managed, strong disclosure, improving governance, and stock rising equity culture across the board. So, in many ways, it's reminiscent of what probably the early late eighties would've been in the US when 401k’s were growing like crazy. So, we should be buying everything in India right now, but we aren't because of one catch — the valuation. It looks like the market knows all of this. It’s figured it out. We do want to find ideas in India because we love good businesses, but we also like great prices, and we are just waiting and hoping that we will find opportunities there that hit that combination of good business and good price. I would reiterate we are not looking for statistically cheap stocks. We don't mind paying up for good businesses, but up to a certain point where it makes sense, whether the return expectation makes sense. So overall, I would say for both those markets more work to be done, and we are just excited to see what 2025 would bring there.