Business / Financial Markets

'Big Short' investor Michael Burry sticks with Japan picks even as market drops

by Reed Stevenson

Bloomberg

Michael Burry has vowed to stick with his long-term stock investments even as markets tumble on the coronavirus.

The money manager who made his name betting against the securities that triggered the global financial crisis has been using the rout to add to holdings in a handful of smaller Japanese companies. He is still excited about the investments because he believes the country is on the cusp of change.

“The virus is a temporary problem,” California-based Burry said in an email interview. “I am still 100 percent focused on stock-picking, and there are lots more opportunities today.”

Japanese stocks have plummeted with their global peers as the coronavirus outbreak and plunging oil prices spur extreme fear in markets. The benchmark Topix, which gauges all first-section issues on the Tokyo Stock Exchange, has lost 27 percent of its value this year. Burry said in the email exchange that he has taken a “significant” bearish wager against indexes that’s performing well as they tumble.

Burry said he has been adding to positions in chipmaking equipment manufacturer Tazmo Co., construction tools and machinery leasing company Kanamoto Co. and Altech Corp., which provides for-hire mechanics and engineers. Each stock has plummeted by at least a third in 2020.

“This creates opportunity,” said Burry, who runs Scion Asset Management. “Companies like Tazmo, Kanamoto and Altech are long-term holdings for me, and the long-term value has not changed.”

The shares of Tazmo climbed as much as 7 percent in early trading Monday, while Altech rose 7.9 percent amid broader market declines. Kanamoto fell about 1 percent.

Burry said the recent spate of takeover bids in Japan reflects a greater willingness by company executives to take risks in the country. They’re looking to boost the value of their businesses, such as by merging, he said.

One potential catalyst for further acquisitions is a planned overhaul that could reduce the number of markets on the TSE from five to three and cut the number of companies in the bloated benchmark index, according to Burry.

Smaller businesses “might find themselves on the outside looking in if they don’t take steps to increase their market capitalization,” he said. “The most obvious and quick way is M&A. But the other benefits are more qualitative — more attention to shareholder returns, margins, selling off cross-shareholdings, growing the business.”

Burry was seeking out investments in Japan even before he became famous by being featured in the book “The Big Short: Inside the Doomsday Machine” by Michael Lewis and subsequent 2015 movie. He is now mainly focused on investing in individual stocks and says he’s seeing change in the country.

“Japan has had many false dawns yes, but the current recession and stock sell-off is clearly due to temporary external factors,” Burry said. “This means that M&A in Japan should pick up, and yes, management is often open to this — especially in cases where the succession plan is not clear. This is a big change from my experience with management 15 years ago.”

Burry mainly targets small and medium-size companies, looking for those that are undervalued and where management is taking steps to unlock their potential. He declined to disclose holdings that might be potential takeover targets, saying only that “it is a theme of mine, and I am investing accordingly.”

This year, Japan has seen a flurry of hostile takeover bids and moves by activist shareholders, fueling optimism they might finally shake loose cash and assets locked in the coffers of firms. Kirin Holdings Co. is being pushed by London-based Independent Franchise Partners to sell its wellness and pharmaceutical businesses, while Elliott Management Corp. has taken on SoftBank Group Corp., arguing the technology investment company should buy back shares and improve corporate governance.

“I find there is a trend here,” Burry said, adding “the basic direction is a good one.”

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