Japan’s export-reliant auto sector will be forced to consolidate to combat competition in an environment roiled by tariffs, according to a portfolio manager at the world’s largest publicly traded hedge fund firm.
Man Group’s long-only portfolio manager Stephen Harget said Japan’s carmakers are being pushed to combine their resources to counter Chinese auto firms’ aggressive business plans and rapid expansion.
“When an industry is really under pressure, consolidation is often a very good answer to that,” Harget said in an interview.
“Japan has a lot of listed automakers and consolidation provides scale merits and they could share the investment burden.”
The Man Japan CoreAlpha Fund has beaten 94% of its peers over the past three years with a gain of 12%.
The gauge of the nation’s automotive industry has fallen 21% over the past year, compared with a 3.4% decline in the broader Topix Index.
Nissan Motor, Toyota Motor. and Honda Motor were among the fund’s top holdings as of end-January, according to Bloomberg-compiled data.
President Donald Trump signed a pair of directives earlier this week, easing the impact of his tariffs on the automotive industry.
This follows a Bloomberg News report last week that the Trump administration was planning to reduce certain tariffs targeting the auto industry.
This is not the first time the country’s largest sector faces headwinds. Including the global financial crisis in 2007, the Japanese auto industry went through a market downturn in 2011 due to Japan’s devastating earthquake, floods in Thailand and a surging yen.
“This time it appears different given the rise in Chinese competitors and tariffs, calling into question the business model of make in Japan, and export,” said Harget.
“We potentially have a crisis on our hands, so Japan needs to grasp the opportunity through industry consolidation and improved corporate governance.”
Harget sees those under financial pressure as potential acquisition targets.
Such companies are often loss-making, have weak free cash flows and report fragile balance sheets, according to the money manager.
He thinks the consolidation phenomenon could be Japan-specific as automakers in other regions have already been through that cycle.
“The Japanese auto names are therefore an anomaly in that sense.”
Loading ...
