Japan’s corporate transformation requires more than just pregnant pandas


At some point on Friday, the operator’s shares Dong TianziThe share price of a famous restaurant in Tokyo’s Ueno district rose 29% after news that a giant panda living in a zoo across the road may be pregnant.

Two days ago, the share price of Dove, Japan’s largest baby product manufacturer, rose sharply after Beijing announced that a tightly populated China would allow couples to have up to three children.

The day before, I tried to ask some questions to the management Globury, A Japanese company that owns some of the most technologically advanced fishing equipment in the world. Since last year, due to the resurgence of the sport driven by the epidemic, its stock price has risen 87%. The company stated that all such inquiries must be made by mail.

Each of these episodes fits into one of the many sub-plots related to Japanese equity investment for decades. For example, there are always humble stocks that can be bought and sold in news reports. Or, Japan offers opportunities in developed markets in China. Or, even the most futuristic Japanese technology may conceal the management of boring, steam-powered stubbornness.

These are good perennials, but for real investment results to flow through the Tokyo Stock Exchange, the market always needs a grand story. This always revolves around the assertion that some long-term deadlocks in Japanese companies are about to be eliminated and have a rapid and transformative impact. Often, from an investor’s point of view, the problem lies in management and its protected complacency or structural inconsistency with shareholders.

Around 2013, corporate governance reform, government pension fund rebalancing, shareholder rights protection, cross-shareholding liquidation, Female economics And tightening management requirements were once the broker’s favorite story to resolve the deadlock. In the intermittent situation, each one caused a lot of investment inflows before succumbing to the frustration of Japan. In fact, nothing can develop so quickly. Currently, brokers and investors are complaining that Japan is seriously lacking a grand narrative.

However, an unusual feature of the Tokyo market is that due to the quirks of organized crime history, the 10-day period at the end of June provides an annual snapshot of Japanese companies. It was during this period that most companies held annual shareholder meetings. Initially, the goal was to protect them from corporate fraud. In a research report last week, Mizuho Securities tweeted that the proportion of listed companies that held annual general meetings on the peak day of June 29 has hit a record low of only 27.3%.

As has been the case for about six years, Japan’s annual shareholder meeting will provide quick and understandable evidence of three things: how activists feel, how large institutions feel about supporting them, and how management feels about both. How threatened. The evidence after three weeks is not yet convincing.

Yes, there are more radicals camped on the shareholder roster in Japan than ever before. About 40% of them are domestic, and they make increasingly sharp recommendations at the annual general meeting. CLSA’s John Seagrim calculated that activists’ declared investment in 416 listed companies reached a record 56 trillion yen ($51 billion), which was 60% and 25% higher than the same period last year. %.

In addition, there were some watersheds earlier this year, when the large sums of money from non-radicalists and activist voting Oppose Toshiba’s managementAll this seems to be very active, but it has been doing this for a while now and it is progressing slowly. Despite the changes, half of Japanese stocks still trade below their book value, and the ratio of cash to equity is not only a record high, but also the largest such ratio in developed markets.

In this context, Kathy Matsui, who stepped down as chief strategist at Goldman Sachs Japan last week, launched an ESG theme Venture capital fund Focus on domestic start-ups that grow to the later stage. She said this is a realistic prospect that can inculcate as a standard the principle that listed companies have proven to be so resistant.

Matsui’s most famous coinage is the term “female economics”, which has remained one of Japan’s most consistent grand narratives of change over the years-if there is no consistent, tangible result. She said that after spending three years trying to instigate change in Japanese listed companies, her efforts will now shift to doing so before the company goes public, and before what she said, it was “too late.”

Japan’s investment sub-blocks, from the pregnant panda boom and factory automation to solid-state batteries and hydrogen-powered cars, will remain the favorites of stock pickers. The grand narrative may require rethinking.

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About the Author: Agnes Zang