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Artificial intelligence, chips and Japanese equities have been some of the biggest buzzwords in global investing over the past year. SoftBank has benefited from all of these trends. The same themes are now putting the Japanese technology investor under pressure.
Over the past year, SoftBank had two strong tailwinds working in its favour: a rally in shares in chip designer Arm and a weak Japanese yen. SoftBank reported a smaller net loss of ¥174.3bn ($1.1bn) in its fiscal first quarter to June, compared with a loss of ¥477.6bn a year ago.
The weak yen has provided a significant boost for SoftBank over the past several quarters, especially in terms of its net asset value. In the latest quarter, its net asset value rose to $219.1bn, up from $183.6bn at the end of March.
Sure, SoftBank’s investments, especially US companies and companies listed in the US markets, have performed well this year. But that was amplified by the Japanese yen weakening by 14 per cent against the US dollar from the start of this year through to early July.
Its 90 per cent ownership of Arm, whose shares have more than doubled since its US listing to its July peak, also helped. Arm was behind SoftBank’s net asset value hitting a record high in the first quarter. It has also helped diversify a portfolio once heavily reliant on China. The country used to account for more than half of SoftBank’s asset holdings on an equity value basis. Now, Europe is its biggest region.
The problem, however, is that the yen has started rapidly reversing course, sparking a huge unwinding of yen carry trades. A US tech sell-off is also under way, including Arm, whose shares have fallen almost 40 per cent in the past month.
The knock-on effect is that SoftBank shares are down a third in the past month, a period in which the benchmark Nikkei 225 index fell 14 per cent. That makes it a decent time to yield to calls for a buyback, with activist investor Elliott ramping up pressure for a $15bn programme. SoftBank’s plans to buy back up to 6.8 per cent of its own shares, or $3.4bn worth, should help put a floor under the stock.
But a lasting reversal depends on an improvement in market conditions and the successful listings of its portfolio companies, with its late-stage portfolio at present valued at $35bn. An increasingly sceptical market will want proof that SoftBank’s newer AI investments can bring in the type of returns that Arm has.
The chart in this story was changed after publication to correct the share price