There is a saying in the stock market, “Avoid what is far away.
The idea is that instead of buying stocks of companies you know nothing about, you are less likely to make a mistake if you choose stocks with which you have some knowledge, such as companies that are related to your daily life or your work.
On May 12, SoftBank Group (SBG) held a press conference for its financial results for the fiscal year ending March 31, 2022, and announced that its consolidated financial results amounted to 1.708 trillion yen. Considering that the previous year the company had posted a profit of 4.9879 trillion yen, the highest ever for a Japanese company, this means that the company lost 6.7 trillion yen over the past year.
This large loss was due to a 3.7 trillion yen investment write-down by the SBG-affiliated “Vision Fund. The stock market slump due to rising interest rates and the invasion of Ukraine by Russia, and the decline in growth stocks was a direct hit.
In particular, the Vision Fund’s investments in the South Korean online retailer Koopan (1.6 trillion yen) and the Chinese car-delivery app Didi (900 billion yen) were found to have failed.
WeWork, an office rental company in which we invested $3 billion in the past, suffered a deterioration of its corporate image as a result of reports of the wild management of its founder, Adam Newman, insider trading, and rowdy behavior at marijuana parties. The company also provided a ¥1 trillion loan to rebuild the business and had to pay Mr. Newman a severance package of $1.7 billion (¥180 billion). Mr. Sun was in love with Mr. Newman, as was Jack Ma, founder of Alibaba Group, China’s largest online retailer. ……
Another Indian hotel chain, OYO, which claimed to be the “Amazon of the real estate industry” with a $1 billion (110 billion yen) investment, had its tourism industry decimated by the spread of the new coronavirus. Zoom Pizza, a $375 million investment in which robots bake pizzas while driving automatically, withdrew from the pizza business and switched to producing pizza containers, among other notable investment failures.
The Vision Fund is backed by Saudi money: Masayoshi Son, chairman and president of SBG, wooed Saudi Crown Prince Mohammed bin Salman and raised $45 billion (5 trillion yen) from a government fund, with a guaranteed annual yield of 7%. The guaranteed yield must be paid even if the company is in the red.
Interest rates will continue to rise globally, and growth in growth stocks is likely to be tough. The Vision Fund’s performance will not improve in the short term.
The course of action we should take now is to defend the fund thoroughly.
The outlook for the global economy is so uncertain that Mr. Son, who is known for his big mouth, has to say so.
A deficit surplus of 1 or 2 trillion yen is the new normal, so we shouldn’t be too surprised.
It seems that Mr. Son is a different person from the one who spoke with great enthusiasm at the press conference in May 2009, when the company posted a profit of 5 trillion yen. At the press conference, while stressing the “reduction of new investment,” he indicated that he would continue to play the money game, saying, “It may falter for one or two years, but after that it will grow significantly.
In response, the market was surprised: SBG’s closing price on May 13 was 549 yen higher at 5,040 yen. Even though the Nikkei 225 rebounded sharply to 678 yen, this was immediately after the company announced a massive 1.7 trillion yen loss the previous day. It continued to rise on Monday, closing the week up 70 yen at 5110 yen.
Despite the huge deficit, the stock price rebounded sharply. What should we make of this price movement? Stock analyst Kazuyuki Suzuki says, “This is an example of a ‘bottom-to-bottom reversal’ in the market.
Since SBG invests mostly in IT companies, its performance is inevitably linked to that of the NASDAQ in the United States. The U.S. market’s share price has been falling for a long time, and it can be said that the loss itself was already factored in by investors.
While it is true that a “deficit of over 1 trillion yen” is an impactful figure, SBG has a plan to deal with it. The cash and deposits held by the company amount to 2.9 trillion yen, and the proceeds from the sale of listed investee stocks and equity-backed loans amount to 5.6 trillion yen. In other words, this exceeds the approximately 5.2 trillion yen invested in the Vision Fund.
Regarding future investments, President Son announced a shift to a safer approach, saying, ‘Since new IPOs will decrease over the next year, we will manage new investments more prudently. The combined effect of these factors is likely to have caused the share price to rise after the financial results.
More specifically, the price movement of SBG may be taken as a harbinger of a ‘bottoming-out reversal’ of the Japanese stock market as a whole in the future.
In light of the stock market maxim at the beginning of this article, many people may think, “I would rather buy shares of Softbank, a company I am familiar with, than buy shares of a company I do not know.
Interview and text by： Daisuke Iwasaki