SoftBank’s long-term investment strategy may benefit in the current interest rate environment, says CLSA

The current interest rate environment could favor Japanese conglomerate SoftBank Group’s strategy of long-term investing as it looks to buy earlier stage tech companies at lower valuations, according to CLSA’s Oliver Matthew.

With prices of potential acquisitions now coming down as investors brace for higher rates, Matthew told CNBC’s “Squawk Box Asia” on Wednesday that SoftBank may end up “getting a better deal.”

Still, he acknowledged that the drop in valuations for listed growth companies this year has also been a clear headwind for the Japanese conglomerate’s stock. Valuations of growth firms in sectors such as tech tend to suffer in a higher interest rate environment as it makes their future earnings look less attractive.

SoftBank’s Vision Fund is a powerhouse in venture capital, investing in everything from Uber to Chinese tech titan Alibaba. Caught in the crossfire of Beijing’s ongoing regulatory crackdown on its domestic tech sector, SoftBank has had to trim its stakes in companies like Uber to cover those losses.

The planned IPO of Arm is also a catalyst for shares of SoftBank Group, said Matthew, who is head of Asia consumer at CLSA.

Shares of SoftBank Group in Japan soared nearly 6% on Wednesday after the company announced it will seek a potential listing for its Arm unit. Some of those gains were later trimmed, with the stock falling about 3% in Thursday morning trade.

The Japanese conglomerate had originally planned to sell Arm to Nvidia, but the sale collapsed amid regulatory scrutiny.

The deal was announced back in 2020 and valued at $40 billion in Nvidia stock and cash. With the sale now off the table, Arm is set to prepare for a public debut within the fiscal year ending March 31, 2023.

“When they did the deal with Nvidia, it was a little bit complicated because they were taking two-thirds of the price in Nvidia stock — which we know SoftBank was very, very bullish on,” said Matthew. As a result, the Japanese conglomerate is likely to look for a higher valuation and let Arm go public “at a pretty decent price.”

SoftBank bought Arm in 2016 for $32 billion.