Category: Investment

Citywire: ”Japanese value is not dependent on a weak yen”

2016-05-20 posted by

”The Japanese equity market has been under pressure recently from a strengthening currency, a weakening global economy and the uncertainty caused by the Bank of Japan’s introduction in late January of a negative interest rate policy. We recognise these concerns, but think that the fears of many market participants are overdone.

As value investors we still see Japan as a fertile hunting ground.

A far greater percentage of listed companies have net cash on their balance sheets in Japan than in any other major market and net cash represents a greater percentage of market capitalisation, as shown below. Furthermore, many of those companies have significant unrealised gains on real estate holdings; and many have large holdings of listed equities, some for strategic business purposes, but some for no reason other than historic relationships.

The question that has occupied the minds of value investors like us has been how that value can be unlocked, used more efficiently and returned to investors when not needed for operational purposes. In that regard, we think that 2015 was a pivotal year for listed Japanese companies.

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Research Report by Kohei Soga ”Scale of ESG investment in Japan”

2016-05-16 posted by

‘‘Summary: This paper will introduce the overview of the results of a questionnaire survey of Japanese domestic investment managers that have signed the United Nations Principles for Responsible Investment (UNPRI) conducted by Nikko Research Center , for the purpose of clarifying the state of environmental, social, and government (ESG) investment in Japan. Until now, ESG investment market research has focused on investment products designed for individual investors and the state of investments including those by institutional investors was never fully understood. From the results of this survey, we learned that ESG investment assets in Japan amount to 46.0 trillion yen, which is an amount that greatly exceeds the scale of individual investor-focused financial products known up until now. In addition, among the ESG investment approaches , the engagement/proxy voting was dominant. After examining the personnel structure related to ESG investment institutions, it was revealed that many institutions have the most personnel devoted to proxy voting operations. Furthermore, an examination into the characteristics of the clientele revealed that institutional investors such as pension funds are the main players in Japanese ESG investment.

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Discussion Paper by Miyajima & Ogawa: ”Convergence or Emerging Diversity? Understanding the impact of foreign investors on corporate governance in Japan”

2016-05-13 posted by

”Abstract: The increasing share of foreign institutional investors has been a global phenomenon for the past few decades. Corporate ownership in Japan shifted from an insider‐dominated to outsider‐dominated structure after the banking crisis of 1997. On the role of increasing foreign ownership and its consequences, there are two competing views. The first view, or convergence view, is that foreign investors have high monitoring capability, and encourage improvements in the governance arrangements of firms, resulting in higher performance. Conversely, the skeptical view insists that they have a strong bias in their investment strategies and are less committed to a firm. Even though a correlation between foreign ownership and corporate polices and high performance could be observed, it could be superficial. Higher stock returns can be induced by their order demand, while performance can simply reflect foreign investors’ preference for high quality firms. To answer which view is more persuasive, this paper analyzes the impact of dramatic changes in the ownership structure on corporate governance, corporate policies, and firm value, with a focus on the role of foreign investors, particularly in Japan…………..”

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Bloomberg: ”This Japanese Activist Investor Doesn’t Have Time for Your Nice Meetings”

2016-05-10 posted by

Not Maruki. Where persuasion doesn’t work, he turns to techniques that include banding with other investors to oust management and filing lawsuits to overhaul corporate practices in order to boost returns for his 9.7 billion yen ($90 million) fund.

“If one always adopts a friendly engagement style, such as having gentle and warm meetings, would the management really change?” said Maruki, 56, who founded Tokyo-based Strategic Capital Inc. in 2012. “After the meeting, it would probably end at a comment like, ‘They were nice.’”

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”CalSTRS, GPIF coming together to tackle corporate governance issues”

2016-05-06 posted by

This informal coalition that seems to be coming into being between the GPIF, CalSTRS, and CalPERS would be a big step ahead in terms of discussions to increase the effectiveness of engagement by not only these organizations, but also their fund managers and other market players.  Kudos to all three institutions, and also Mr. Mizuno, for moving in this direction.

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Business Financial Post ”Japan discovers ‘good’ governance, U.S. style”

2016-04-28 posted by

”Not so long ago, back when they were eating the lunch of American corporations, Japan’s Toyotas, Hitachis, Sonys, Canons and Hondas were governed in the worst possible way — at least according to the canons of American governance. Their boards were made up almost exclusively of corporate insiders, with no independent directors and no diversity. […]

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Bloomberg: ”The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc.”

2016-04-27 posted by

“…. Still, the longer the BOJ’s buying persists, the bigger the risk that market prices will detach from fundamentals. Assuming Goldman Sachs’s prediction for more stimulus proves correct, the central bank could end up owning a quarter of Mitsumi Electric Co., a supplier to Apple Inc., and 21 percent of Fast Retailing by the end of 2017, estimates compiled by Bloomberg show.

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”In Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks”

2016-04-26 posted by

 

”The latest shocking example of just how intertwined central banks have become in not only Treasury and corporate bond markets and their respective “valuations”, but also in stocks, comes courtesy of the Bank of Japan which days ahead of an announcement which may see it double its ETF purchases from the current JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct) has just been revealed to be a top 10 holder in about 90% of all Japanese stocks!

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Goldman Sachs Asset Mgt. : The Upside of Japan’s Corporate Reforms

2016-04-23 posted by

JAPAN’S VALUATIONS HAVE FALLEN DESPITE STRONG EARNINGS GROWTH

GSAM-Connect-Japan-Equities_r2

Source: Factset, IBES, GS GIR. Data are consensus for calendar years January 1, 2013 to March 22, 2016. Past performance does not guarantee future results, which may vary.

Goldman Sachs Asset Management (GSAM), one of the world’s leading investment managers discusses its constructive view on Japanese equities with Mr. Ichiro Kosuge, the Fundamental Equity Portfolio Manager. Mr. Kosuge highlights the importance of corporate sector reforms to the market’s outlook.

”What is your overall view on Japanese equities?

Ichiro Kosuge: We are constructive on Japanese equities. In addition to the potential for macroeconomic improvement, we believe corporate governance reforms, high cash holdings and attractive valuations could drive equities higher.

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