Hedge funds pitch Japanese stocks at first Sohn Tokyo event

Hedge fund managers presented Japanese stock ideas at the inaugural Sohn Tokyo Investment Conference on Oct. 16, citing corporate governance reforms, rising profitability and changes in shareholder returns. Makino Milling Machine, Money Forward and other companies featured among their picks.

The event followed record highs for Japanese equities earlier this year. Managers focused on companies they expect to benefit from stronger earnings, demand in new industries and changes in how businesses use capital.

Hideki Kinuhata, chief investment officer at Silq Capital, identified machine-tool maker Makino Milling Machine after the company resisted takeover attempts. He expects its earnings to rise 80% in the three years through March 2028, supported by demand from commercial aviation, defense and satellite manufacturers.

Software companies were another focus. Riho Yokozawa, a portfolio manager at Japan Catalyst, backed accounting software provider OBIC Business Consultants. She forecasts revenue growth of about 80% in the coming years and expects the company’s pricing power to support results despite concerns that artificial intelligence could reduce demand for some software services.

Marc Wallach, a partner and portfolio manager at Ruane Cunniff, recommended financial software developer Money Forward. Japan offers favorable conditions for software companies to improve profitability, in his view. He expects Money Forward’s operating margin could reach 30%, with annual earnings growth of as much as 25%.

Masaki Gotoh, chief investment officer at TriVista Capital, highlighted Harmonic Drive Systems, which makes precision components for industrial robots. He expects the company to benefit from demand for humanoid robots and other machines that use artificial intelligence to operate in the physical world.

Some managers presented ideas outside Japan. Thea Jamison, founder of Change Global Investment, identified Indonesian telecommunications company PT Telkom Indonesia as a stock that could rise about 90%. Indonesian stocks had sold off after an MSCI warning about the country’s classification as an emerging market.

Eduardo Marques, chief investment officer at Pertento Partners, forecast 100% upside for South Korea’s Hanwha Corp, citing higher global defense spending and growth in its aerospace business. He took a negative view of battery-materials makers Ecopro and Ecopro BM because of high valuations, weaker profitability, debt and excess production capacity.

Daisuke Nakayama of Polymer Capital Management recommended Orix Corp. He expects the company’s growing use of third-party capital and leverage to support faster earnings growth and a higher valuation.

Soren Aandahl, chief investment officer at Blue Orca Capital, highlighted Rohm, Chubu Electric Power and TRE Holdings because of their indirect stakes in Toshiba. He expects a future Toshiba initial public offering to produce gains that are large relative to the companies’ current market values, following Toshiba’s operational recovery.

Activist investing was also discussed. Seth Fischer, founder of Oasis Management, plans to continue challenging the founding family’s influence at Japanese drugstore operator Kusuri no Aoki Holdings. He has sought explanations for stock options issued to members of the Aoki family.