I did read some interesting this week. It was about how some big boys of finance were buying up all sorts of Japanese companies for their properties.
Did I read that correctly?
No, not their fundamentals, not their potential outlook for the future, but properties.
More specifically, properties that they own from way back in the 1990s and 2000s. I was asking myself, what the hell are they doing?
Well, it turns out, there is some accounting quirk in Japan that many investors have now noticed and could be profitable.
For this week’s newsletter edition, we will be looking deep into what we can learn about accounting principles for properties in Japan, and how it matters for your investments.
All of this work that I am doing is currently free for you and is my way of helping the regular person on the street make good investment decisions (without dodgy stock-picking and investment schemes, I hate those).
Drop us a follow and subscribe to our Substack. And if you are interested, I also have my own content company, Slice of PIE and our socials LinkedIn and Medium. Every support helps, thanks for reading!
Get your weekly key doses of news here.
Tariff Time?: Remember that 25% tariff that Trump wants to impose? A tariff is like a tax on things that you import from overseas. Well, it wants to impose them on Canada and Mexico, and oh, 10% on China’s imports.
- Some are worried about the effects. And with good reason. These 3 countries make up 45% of the U.S.’s imports in 2022 according to data from OEC. Lots of things could get more expensive for U.S. people.
- And for these countries, the U.S. is their top export destination, and the tariff will make their products more expensive to buy.
Corruption in China: Last week saw a couple of high-profile investigations into China’s key politicians and figures.
- Dong Jun, the Defence Minister, is under investigation for corruption.
- Miao Hua, director of political work for the People’s Liberation Army, was also suspended and placed under investigation.
- This has been ongoing since last year when it has conducted numerous probes into military leaders.
Is the price war intensifying in China?: A leaked email from BYD to its supplier showed that BYD is asking them for a 10% cut in prices.
- The price war is probably heating up even more in China in 2025. A price war is when several companies cut their prices aggressively to outcompete each other, often at sharp losses.
- BYD is the current leader in China, followed by Tesla, Wuling, Li Auto and Geely.
GCash IPO?: GCash is inviting banks to pitch for an IPO for their company to raise US$1.5 billion.
- GCash is the Philippines’s biggest fintech player that allows people to transfer and receive money, shop,
Capital A: Well, it seems like Air Asia is not flying too hot. Its 3Q 2024 results have been disappointing.
- Core loss is at RM143 million for the quarter, culminating in a total loss of RM120 million for the 9 months of 2024.
This is why accounting is so interesting.
If you imagine just a stuffy-looking gruff man typing away on his computer, crunching numbers … well, you might be right.
But he’s piling through property values on Japanese companies’ balance sheets for any ‘spicy’ accounting intricacies.
You see, something peculiar is abound in Japan. For some god-damn reason, Japanese companies record most of their property values at book value minus depreciation and proceed to leave them at that value for … years.
It’s like you bought a rare Pokémon card (like some first-gen Charizard or some shit, I don’t know, I don’t collect Pokémon cards) 10 years ago, and then proceeds to tell everyone that the value has remained unchanged for the next 10.
??? LMAO
But that’s exactly what’s happening for Japanese companies. They have a boatload of properties on their balance sheets that were registered at values that are way below market.
Why?
Well, you see, in the 1990s, they popped. No, no that kind of pop, you dirty bastard. The economy, stock and property market popped and led to 3 decades of slow growth.
And companies caught with their pants down, kept the values of their properties at their original value so that they don’t incur losses on their books.
But it is now 2024, and the Japanese economy finally got back on track. Chances are these properties will now fetch a higher market value.
So, finance boys going to be finance boys. They piled into Japanese companies, hopeful that they would sell these properties and declare a bunch of dividends.
But could it work?
It might. You see, they can just revalue their properties at this point at the market value. When they do that, on paper, they will be making ‘profits’.
So, technically, they can give dividends … assuming they have cash.
But … they could sell the properties, right?
Well, who gonna buy them?
That’s my question. Japan is doing well, but I don’t think there are many local Japanese players that will buy KNOWING that these finance boys are trying to do this.
So, what can we learn?
Valuation is a lie until they are sold. On the profit and loss statement, many companies will always try to fudge it in their favour.
In the Japanese case, because the property market was in a downfall for so many years, they refused to re-value their properties to avoid losses.
But now, with the market back in favour, many of them are trying to re-value their properties and sell them. And they are not even property companies for goodness sake.
If you are an investor, always be aware that property valuation is always in favour of the company, and artificially inflates profits and in bad times, hide them.
