For me, this also raises the question of which stock market to invest in at all. Currently, I'm quite attracted to the Japanese stock market, as deeply undervalued stocks can be found there. Many of these companies also hold substantial cash and financial assets on their balance sheets.
Additionally, the Tokyo Stock Exchange is now requiring companies trading below book value to publish plans for improving their capital efficiency – which adds an interesting catalyst for value realization. Furthermore, the risks regarding balance sheet manipulation and governance seem very low to me. Further, the 6 -12 month momentum of these stocks is strong. About 700 stocks alone may trade at or below 0.5 of book value.
I agree with part of your reasoning, especially since I’m actively monitoring a few corners of the Japanese market. It’s hard to disagree with your observation: some pockets of the market still look undervalued.
That said, on the “catalyst” angle, I’m a bit more skeptical. East Asia’s economic and financial history, especially Japan (and to some extent Korea), has shaped a structural preference for “fortress” balance sheets: accumulating cash out of prudence, risk aversion, and as a legacy of past stress periods (notably the crises of the 1990s). On top of that, a set of institutional factors has reinforced this behavior.
To the point that since 2010-2015, this cash buildup has increasingly been seen as a national-level problem: it has contributed to under-invested (and therefore sometimes undervalued, as you point out) equity markets, but also to weaker economic dynamism. There have been attempts at reform to encourage companies to improve capital allocation, either through shareholder returns or reinvestment. But the approach has remained soft, largely because it didn’t and still doesn’t always command consensus, either within the political apparatus or among companies themselves.
Personally, the “they’ll be pushed to reinvest or distribute their cash → catalyst” argument is something I’ve been hearing for years, and it still hasn’t fully materialized, at least in Japan, in a way that’s systematic enough to make it a central short-term thesis IMO.
There have been more visible developments in South Korea recently (the “Corporate Value-up Program”), and in my view that’s one of the main factors behind the KOSPI delivering the best performance among major country indices in 2025 (+76%).
As always in value investing, one of the main risks is the opportunity cost: waiting for the catalyst can be long and costly. For my part, I’d rather wait either for the companies I’m watching to become even cheaper, or for a more explicitly binding framework (or at least much more tangible signals) that reduces uncertainty around the timing and the magnitude of the rerating.
BTW last year I was invested in stocks from Colombia and Chile. This was a very good idea. Here you find a coverage of current global market valuations: https://substack.com/home/post/p-184943061
For me, this also raises the question of which stock market to invest in at all. Currently, I'm quite attracted to the Japanese stock market, as deeply undervalued stocks can be found there. Many of these companies also hold substantial cash and financial assets on their balance sheets.
Additionally, the Tokyo Stock Exchange is now requiring companies trading below book value to publish plans for improving their capital efficiency – which adds an interesting catalyst for value realization. Furthermore, the risks regarding balance sheet manipulation and governance seem very low to me. Further, the 6 -12 month momentum of these stocks is strong. About 700 stocks alone may trade at or below 0.5 of book value.
It is almost as good as it gets!
see also here:
https://borjaclavero.substack.com/p/equity-markets-forecast-q4-2025
https://www.gmo.com/europe/research-library/gmo-7-year-asset-class-forecast-4q-2025_gmo7yearassetclassforecast/
I agree with part of your reasoning, especially since I’m actively monitoring a few corners of the Japanese market. It’s hard to disagree with your observation: some pockets of the market still look undervalued.
That said, on the “catalyst” angle, I’m a bit more skeptical. East Asia’s economic and financial history, especially Japan (and to some extent Korea), has shaped a structural preference for “fortress” balance sheets: accumulating cash out of prudence, risk aversion, and as a legacy of past stress periods (notably the crises of the 1990s). On top of that, a set of institutional factors has reinforced this behavior.
To the point that since 2010-2015, this cash buildup has increasingly been seen as a national-level problem: it has contributed to under-invested (and therefore sometimes undervalued, as you point out) equity markets, but also to weaker economic dynamism. There have been attempts at reform to encourage companies to improve capital allocation, either through shareholder returns or reinvestment. But the approach has remained soft, largely because it didn’t and still doesn’t always command consensus, either within the political apparatus or among companies themselves.
Personally, the “they’ll be pushed to reinvest or distribute their cash → catalyst” argument is something I’ve been hearing for years, and it still hasn’t fully materialized, at least in Japan, in a way that’s systematic enough to make it a central short-term thesis IMO.
There have been more visible developments in South Korea recently (the “Corporate Value-up Program”), and in my view that’s one of the main factors behind the KOSPI delivering the best performance among major country indices in 2025 (+76%).
As always in value investing, one of the main risks is the opportunity cost: waiting for the catalyst can be long and costly. For my part, I’d rather wait either for the companies I’m watching to become even cheaper, or for a more explicitly binding framework (or at least much more tangible signals) that reduces uncertainty around the timing and the magnitude of the rerating.
BTW last year I was invested in stocks from Colombia and Chile. This was a very good idea. Here you find a coverage of current global market valuations: https://substack.com/home/post/p-184943061
Great piece as always.
It's quite impressive that his investment record matches his desired return on a purchase (half of estimated value after 5 years)!
He did the impossible in active management; he did what he said he would.
This is my first time coming across this great investor. Thanks for sharing.
Thank you very much, Seyi!
“He did the impossible in active management; he did what he said he would.” That’s very well put, it would have made an excellent conclusion.
He used to be rather sparing with media appearances, but over the past year or two he’s been doing one podcast after another (fortunately for us).
Looking forward to reading you again!