Aisa Ogoshi, JP Morgan Asset Management
Japan’s Stewardship Code, published in 2014 by the country’s Financial Services Agency in a move to improve corporate governance, has been widely adopted by Japanese listed companies, said Ogoshi, co-manager of the JPMorgan Pacific Securities Fund.
The implementation of the code has effectively changed companies’ behaviour in forming the board of directors and in managing shareholder relationships, she said.
“Listed companies that improve corporate governance, including independence of the board of directors [from management] and adding sensible dividend return policies, will have a tendency to deliver better returns,” Ogoshi told FSA.
Historically, the return of equity in Japanese companies has been artificially small because they have held too much cash. But she sees a gradual change after the stewardship code was endorsed.
She cited as an an example an “over-capitalised Japanese gaming company”, one of the long-term holdings in the fund. Recently, the company reviewed its shareholder return policy and adopted a policy of paying a minimum of 50% of profit to shareholders.
“We believe the company management got the message and was able to make the move because they have better visibility on their future earnings growth,” she added.
In the fund she manages, as of the end of March, 44.6% of assets are invested in Japanese equities, compared to 38.7% in its benchmark, the MSCI AC Asia Pacific Index. A roughly 6% discrepancy to its index represents the biggest overweight in this fund over the past five years, according to Ogoshi.
She said although the overweight may be a result of the fund’s bottom-up stock selection, Japanese companies are nonetheless beneficiaries of an improving domestic economy.
“Traditionally the manufacturing sector does well when global growth is strong, However, in Japan, the recovery of domestic consumption sectors shows signs of strength, so we think [Japan’s economy] is not just an export or technology sector-driven story, but has broad-based strength.”
She is also bullish on domestic service companies, such as the food and beverage and logistics sectors, and pharmaceutical companies and retail companies that operate internationally.
The strength of the Japanese yen is a factor, but many companies have now diversified their manufacturing and operations internationally, so they are less vulnerable to currency movements than they might have been historically, she said.
Japanese equities are also attractive because of cheaper stock valuations compared to stocks listed in US and Europe, she added.
In the near term, Ogoshi expects Japan’s central bank will continue to focus on reaching the inflation target. Meanwhile, the monetary policy and the central bank’s bond purchase programme, which has been a source of support for the domestic market, will remain unchanged, she believes.
On the flipside, she holds a slight underweight position in Chinese equities in the fund, citing valuation concerns, particularly with internet companies after the rally in 2017. However, China accounts for 15% of the fund’s assets and remains the second biggest holdings in terms of geographic location. Australia is the third largest exposure.