Harris Associates Bullish on European Equities, Treads Lightly in Japan

Harris Associates, a prominent investment firm based in Chicago with $95 billion in assets under management, expresses a keen interest in European equities while exerting caution in the Japanese markets. The company's venture into value investing has led them to spot substantial investment opportunities across Europe.

Europe Attracts Harris Associates

David Herro, the vice chairman and chief investment officer at Harris Associates, has reported an overweight position in the European market through the firm's Oakmark International funds. He reveals a particular fondness for financial stocks within Europe, citing the appealing combination of reasonable prices and high-quality companies. Herro points out that European stocks, especially in Germany, are currently undervalued if one considers metrics such as return on equity and price-earnings ratios. Factors like fluctuating energy prices and international events, like the conflict in Ukraine, have led to suppressed equity prices, opening up attractive investment avenues.

Cautious Approach Toward Japan

While optimistic about Europe, Harris Associates exercises caution with respect to Japanese equities. Herro indicates that Japanese stocks do not exhibit the same level of undervaluation as in Europe, and while the potential for return on equity increases exists, the market's overall opportunities don't match up with those found in Europe. Despite the general market's less compelling stance, the firm does find appeal in specific Japanese sectors such as IT services and human resources, highlighting companies like Sugi Holdings and Sundrug as valuable investments.

The rising stock prices in Japan, partly a result of the 'Abenomics' policy-driven rally since the early 2010s, impede a more aggressive investment strategy, leading to a significant reduction in Harris Associates' Japanese stock holdings from 23-24% to nearly zero, before settling at around 3-4%. Herro also expressed a desire for increased pressure from the Tokyo Stock Exchange and investors on Japanese companies to elevate capital efficiency and improve balance sheets, suggesting that although valuable stocks are present, they require extensive effort to uncover.

Overall, Harris Associates sees emerging investment possibilities in Europe's undervalued equities market, while they remain selective and careful with investments in Japan's more robustly priced stock market.

Europe, Japan, Investing