Samir Mehta

Senior Fund Manager, JOHCM

Fresh appetite for an Asian strong man

Rikisi – Japanese  literally means ‘strong man’; a general term used for sumo wrestlers

Japan has several attractions, too many to enumerate, that I admire. Japanese food is near the top of that list. My first experience of eating sashimi and sushi was in 1995, thanks to an indulgent American boss. On my first ever road-show to New York, he treated me at an upscale sushi restaurant. I was born to a vegetarian family, possessed a limited palate and was uneducated about the subtleties of cuisine. I was flummoxed when he told me sashimi was raw fish. Boy was I glad I went. Since then, like many of you I presume, I have sampled and savoured great Japanese cuisine served across the world. 

Yet, to travel to Japan and partake in its culinary expertise is unique. Dyan Machan, writing in last week’s Wall Street Journal on her travels to Fukuoka, started by saying “it feels silly to apply the term ‘life affirming’ to a bowl of noodles” when she extolled the virtues of a pork-based ramen called tonkotsu. I, too, was fortunate to travel recently to Tokyo and relished more than a couple of great meals. I won’t even try describing the experience – it’s best enjoyed in person.


Japanese cuisine – the epitome of change   

Which is why I was perplexed when I read reviews of a book by Bee Wilson, a British food journalist, ‘First Bite: How We Learn to Eat’. She discusses different countries’ food cultures and cites various experts who claim that eating is a learned behaviour. In her telling, she showcases Japan as a country whose cuisine epitomises the psychology of change. “The country’s cuisine hasn’t always been fresh fish, flavourful soups and elegant, umami-loaded offerings that look pretty in bento boxes. For centuries the diet was unrefined and carb-heavy — a typical meal consisted of grains with shredded yam leaves, radishes and pickles. After World War II, though, when the country experienced an economic boom, newfound affluence allowed for more refrigerators (therefore more protein) and more variety. Gradually, as borders opened and palates expanded, the Japanese were introduced to the idea of eating for pleasure, and Japanese cuisine as we now know it was formed. It turns out that wherever they are from, people are capable of altering not just what they eat, but also what they want to eat, and their behaviour when eating it. It is startling that Japan, a country whose “flavour principles” included little spice except ginger, should fall in love with katsu curry sauce made with cumin, garlic and chili. A country where people once ate meals in silence has shifted to one where food is obsessively discussed and noodles are loudly slurped to increase the enjoyment. So perhaps the real question should be: if the Japanese can change, why can’t we?”


The heavier you are, the more force required…

In between my meals I managed to catch the first day of a sumo wrestling competition. For the uninitiated like me, sumo is somewhat equivalent to wrestling. But it is rich in history and tradition where wrestlers adhere to a strict lifestyle. It is fascinating to watch these generously built men, bursting at the seams of their mawashi (a loin-like, thick belt about 30 feet in length that is wrapped around the body several times and knotted securely in the back). A contest starts with the ritual of sprinkling salt, sizing up your opponent, some vigorous stretching before going to battle. A couple of starts reminded me of two big horned rams taking on each other for territorial dominance. 

While almost everyone in Japan is trim and lean (some studies say the level of obesity in Japan is just 3.6%), isn’t it ironic that the Sumo wrestlers are encouraged to put on weight? They begin their day with a hard practise and do not usually eat breakfast. Lunch is a meal of nutritious, high-calorie stew with large portions of rice and many side dishes. Sumo wrestlers eat huge amounts of food and nap immediately following a meal in order to gain weight. After I saw the games and these imposing men I understood that the nature of the game necessitated these wrestlers to bulk up. After all, Newton’s second law of motion, acceleration = force/mass, means the heavier you are, the more force an opponent needs to get you moving and push you out of the ring.


HSBC: added heft

You might wonder why do I meander from exquisite cuisine to psychology of food to weight gain amongst sumo wrestlers to Newton’s laws and lead you to a couple of paras finishing up with HSBC Holdings (HSBC), the latest addition to our portfolio. It’s quite simple – HSBC now appears to be a bulked up sumo wrestler. Not fattened up in the traditional sense on costs; au contraire, it has shed its flab in the right places by cutting costs aggressively. Where it has added heft is in its capital position. Simply stated, it is over-capitalised. 
















Generally speaking, laws address the last crisis, never ones that will occur in future. Since 2008, the banking industry has seen tighter regulation and is in much better financial shape today. Chastened by near death experiences and a severe fall in revenues (as interest rates globally have fallen), banks had to cut costs aggressively, pare lending and conserve capital. Two ‘extraordinary’ costs – provisioning for non-performing loans and regulatory fines have, in my view, peaked. Over the next few years, technology will likely be a double-edged sword. Applications like blockchain will help lower the cost curve while start-ups try to disrupt payments and other financial products. No one can predict for sure what the net impact will be. However, from an operational standpoint, HSBC, after cutting costs, is positioned for positive operating leverage. The direction of interest rates over the medium to long run is debatable. Do forces of structural technological disruption keep inflation muted even as the economy stabilises and unemployment rates fall? Or does the recent uptick in commodity prices and recovery in growth in emerging markets as well as the EU suggest that a synchronised global recovery is likely to pressurise inflation upwards? My two cents: any rise in rates will be massively positive for HSBC. If rates do not rise, this current synchronised global recovery, in itself, lends itself to higher credit demand and therefore better top-line growth. 
















With more than adequate capital, years of cost cutting and optionality, I think HSBC is a good business to own for the next 12-18 months in the least. I do not think we can re-visit the gung-ho years of the 1990s when HSBC grew rapidly and its price-to-book valuation reached well over 2.5x. But at current valuations of just around 1x book value and a 5% dividend yield, we can be paid to wait. With so much weight gain, HSBC is not a pushover anymore.

















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