Posted inAsset managers

A more shareholder friendly Japan

Driving interest in Japanese equities are apparent corporate cultural changes that include a movement toward increased dividends and share buybacks, which could lead to a long-term re-rating of Japan.
Mount Fuji reflected in Lake Motosu, Fuji-Hakone-Izu National Park, Honshu, Japan

Moreover, valuations of Japanese equities look attractive, listed companies are typically financially sound and earnings have been generally strong.

“Corporate Japan is changing – not only are valuations supportive, but also many of the policies that come under the banner of Abenomics are leading companies to behave in a more shareholder-friendly way,” Lyndon Gill, senior investment manager investment solutions at Aberdeen Asset Manager said in research note.

The Aberdeen team is overweight Japanese equities, as it sees a plethora of opportunities available to “astute” bottom-up stock pickers.

“Turning round an economy which has languished in deflationary territory for so long was never going to be an easy prospect. Nevertheless, we look to benefit from Japan’s reflation, from both the domestically-focused and export-orientated perspectives.”

According to Aberdeen, export-oriented companies would be the obvious beneficiaries if the yen weakens further, but the manager also sees positive implications for tourism companies.

Shareholders benefitting

According to Eastspring Investments, there have been measureable behavioural shifts in the Japanese corporate sector.

“The [concentrated] restructuring effort of many Japanese companies is now helping to deliver strong earnings growth, which we believe is yet to be reflected in higher share prices. These are drivers of longer term sustainable earnings which may also contribute to a longer term re-rating in Japan,” Eastspring said.

Eastspring cited research by JP Morgan Asia Pacific, which showed share buybacks were at a multi-year high in 2014, totaling JPY4.2trn ($34bn) in 2014, up 86% from 2013. 

Eastspring expects this trend to continue in 2015.

The asset management company also cited data from Nikkei Asian Review, which showed that Japan’s listed firms are on track to pay record high dividends of JPY7.4trn, up 7.5% from the previous record reached in the fiscal year ended March. 

“Initial signs are encouraging, as banks and other companies that have been reluctant to increase payouts have started to act,” Nikkei said.

In addition, a number of companies, especially in the technology sector, have announced dividend hikes.

Acting as a catalyst in promoting the changes in corporate culture is the shareholder stewardship code for institutional investors, which was introduced in 2014.

Moreover, the Financial Services Agency is planning to unveil Japan’s first ever-corporate governance code from 1 June, which will set the stage for further shareholder-friendly initiatives. 

A look at the three-year performance of Aberdeen Global Japanese Equity Fund:


A look at the three-year performance of the Eastspring Investments – Japan Dynamic Fund:


Part of the Mark Allen Group.