Hosking Partners is a London boutique founded in 2013 by Jeremy Hosking, a portfolio manager at Marathon Asset Management for over 25 years. It runs a single global equity strategy built on the capital-cycle, supply-side approach — contrarian, long-term, and unusually diversified (350+ holdings) under a multi-counsellor model, managing around $5.5bn.
This report says the 12% crash in Japan's stock market on August 5 wasn't due to bad fundamentals but because big institutions (like banks and insurers) that borrowed money to buy stocks were forced to sell when Japan raised interest rates. The author thinks this dip actually makes the bull market last longer and advises buying more Japanese stocks. He mentions two firms: Hokuetsu (a paper company targeted by activist investor Oasis Management) and Daily Nippon Printing (a printer invested by Elliot Advisors), but says they're too small to cause the crash.
One-sentence summary: The August 5 crash in Japanese stocks was not a fundamental issue but rather a currency mismatch unwinding by the fourth type of investor (large institutions). The pullback has instead extended the bull market runway, and the report recommends increasing exposure to Japanese equities. [Bullish]
The article argues that the Nikkei 225's single-day plunge of over 12% on August 5 was not triggered by Japanese stock market fundamentals or overvaluation, but by the unwinding of positions held by the fourth type of investor—large institutions (both Japanese and international) with legacy currency mismatch strategies. Author Jeremy Hosking opens by quoting Charlie Munger's famous line, "Only when the tide goes out do you discover who's been swimming naked," and admits he was equally stunned when looking at the screen. He raises two key questions: Why did the world's cheapest market (Japan) suffer the largest drawdown in this global "correction"? And why, in an era of "savvy, stock-picking investors," did nearly all stocks fall by roughly the same magnitude?
The author categorizes investors holding long positions in Japanese stocks into four groups and identifies the culprit through elimination:
The author judges that while severe, this correction is likely short-lived and instead broadens and lengthens the bull-case runway for the Japanese stock market. He writes: "Moreover, this setback (on this writer’s view) broadens and lengthens the bull case-runway for the Japanese stock market." Over the past 18 months of research, there is no evidence that the valuation logic of most Japanese stocks is flawed. On the contrary, this story will take a long time to fully unfold, and only patient investors will benefit.
The core investment thesis remains unchanged: companies with enterprise values near zero (or negative), combined with substantial "non-core" corporate assets that can be monetized and returned to shareholders, form an investment case that cannot be destroyed by macroeconomic adversity or valuation bubbles. Short-term price volatility only strengthens this case. The author emphasizes: "As for valuation excess risk, it is the undervaluation that is excessive!"
The article points out a unique phenomenon in the Japanese stock market: buybacks and cross-shareholding unwinds form a "unity," with the unwind having right of way. While this delays the short-term price boost from buybacks, it significantly enhances returns for patient investors over the long term. In Anglo-American thinking, buybacks are key to deleveraging and boosting valuations, but in Japanese practice, cross-shareholding unwinds (selling) and buybacks (buying) occur simultaneously. The author uses an analogy: "it is the unwind that has right of way, rather like uphill-bound traffic on a narrow road bridge." Companies can buy back their own shares at a discount, but the effect is that each monetization of residual assets results in a larger number of shares being canceled, thereby substantially increasing investor value over the long term—while nearly eliminating buybacks as a tool for short-term stock price improvement.
The author explicitly recommends increasing exposure to Japanese stocks during the current correction, especially for investors with a long-duration advantage who will benefit greatly. However, it should be noted that this is the perspective of a position-holder (Hosking Partners), which is already deeply allocated to the Japanese market, and the article carries a clear tone of self-defense and promotion. Readers should be aware that the author's judgment is based on the assumption that "the unwinding by the fourth type of investor is a short-term event." If the yen continues to appreciate or global risk appetite deteriorates further, the correction could last longer than expected.
| Ticker | Direction | Author's One-Sentence View | Key Data |
|---|---|---|---|
| Hokuetsu (Mid-cap Paper Company) | Hold & Observe | Mentioned as a case of a Category III investor (activist investor), but its small scale prevents systemic sell-offs | Oasis Management invested in the company |
| Daily Nippon Printing | Hold & Observe | Mentioned as a case of a Category III investor (activist investor), but its small scale prevents systemic sell-offs | Elliot Advisors invested in the company |