Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

TSE Tokyo Price Index TOPIX / Event-Driven

<ul>
<li>For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.</li>
<li>The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to one relatively simple indicator. </li>
<li>The policy backdrop points to greater corporate buying, greater foreign flow, greater selling by individuals and trust banks. The current timing probably matches. </li>
</ul>


For years I have tracked investor category flows in Japanese stocks because I find them quite informative. I write about them every so often in an insight series JAPAN FLOW.
The series, which I have written about for years, suggests foreign investors invest in Japan pro-cyclically and that correlates well to one relatively simple indicator. 
The policy backdrop points to greater corporate buying, greater foreign flow, greater selling by individuals and trust banks. The current timing probably matches. 


JAPAN FLOW: Foreign Investor Inflows May Increase

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Given the rapid aging of Japan's population, if the current composition of the board of directors continues, the number of directors will further age in the future.</li>
<li>A board that embraces diverse age range is likely to embrace people with diverse backgrounds and skillsets, and a diverse board composition is likely to have positive impact on management.</li>
<li>In Japan, with strong peer pressure, CEOs controlling human resources, % independent directors and female board members in 40% and 15%, many companies are hesitant to hire talent they need.</li>
</ul>


Given the rapid aging of Japan's population, if the current composition of the board of directors continues, the number of directors will further age in the future.
A board that embraces diverse age range is likely to embrace people with diverse backgrounds and skillsets, and a diverse board composition is likely to have positive impact on management.
In Japan, with strong peer pressure, CEOs controlling human resources, % independent directors and female board members in 40% and 15%, many companies are hesitant to hire talent they need.


Many Companies in Japan Are Still Hesitant to Hire the Talent They Need

<ul>
<li>TSE plans to mandate the development of IR system, but since most companies disclosed that they have already taken action, fewer companies will move to do something from now on.</li>
<li>Analysis of IR disclosure and stock valuations showed that IR disclosure scores did not differ among the five groups of companies by percentage change in Tobin's Q. </li>
<li>The fact that many companies haven’t been able to provide capital profitability and management strategies that investors seek has led to reluctance to hold briefings to communicate with overseas investors.</li>
</ul>


TSE plans to mandate the development of IR system, but since most companies disclosed that they have already taken action, fewer companies will move to do something from now on.
Analysis of IR disclosure and stock valuations showed that IR disclosure scores did not differ among the five groups of companies by percentage change in Tobin's Q. 
The fact that many companies haven’t been able to provide capital profitability and management strategies that investors seek has led to reluctance to hold briefings to communicate with overseas investors.


Reasons Why the TSE's Request to “improve IR System” Seems to Be Ineffective This Time

<ul>
<li>Even in 93.8% of prime companies that disclose financial results in English, many disclose only summaries and financial statements in English, while few provide qualitative information and notes in English. </li>
<li>The belief that the company doesn't provide sufficient information to shareholders to control AGM is common to reluctance to disclose documents in English, which are highly demand by overseas investors.</li>
<li>The idea of “not wanting to provide overseas investors with sufficient information,” which has ingrained in many companies, is opposed to movement to “improve the quality of dialogue with investors.”</li>
</ul>


Even in 93.8% of prime companies that disclose financial results in English, many disclose only summaries and financial statements in English, while few provide qualitative information and notes in English. 
The belief that the company doesn't provide sufficient information to shareholders to control AGM is common to reluctance to disclose documents in English, which are highly demand by overseas investors.
The idea of “not wanting to provide overseas investors with sufficient information,” which has ingrained in many companies, is opposed to movement to “improve the quality of dialogue with investors.”


Another Reason Companies Are Reluctant to Disclose in English, and Not Just Because of the Cost

<ul>
<li>The fact that the FSA did not request filing “more than three weeks in advance” rather than “a few days before the AGM” suggests how much resistance companies are encountering.</li>
<li>It is not easy to get a company that is concerned about losing control of an AGM to allow the AGM to be moved to a later date.</li>
<li>The tactic of controlling AGM is opposite of interacting with shareholders. Companies that have already converted to management that creates value through engagement aren't expected to adhere to such tactics.</li>
</ul>


The fact that the FSA did not request filing “more than three weeks in advance” rather than “a few days before the AGM” suggests how much resistance companies are encountering.
It is not easy to get a company that is concerned about losing control of an AGM to allow the AGM to be moved to a later date.
The tactic of controlling AGM is opposite of interacting with shareholders. Companies that have already converted to management that creates value through engagement aren't expected to adhere to such tactics.


Need to Shift from Obsession with Controlling AGM to Sharing the Value of Engagement

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

JAPAN FLOW: Foreign Investor Inflows May Increase

JAPAN FLOW: Foreign flows matter in Japanese equities. Foreigners chase performance, individuals and trust banks fade it. This works over multi...

Travis Lundy

Many Companies in Japan Are Still Hesitant to Hire the Talent They Need

I would like to discuss the issues on the February 19 Nikkei article, “Japan's Aging Board of Directors: Sanrio Re-Grows with ‘Old and Young...

Metrical Inc

Reasons Why the TSE's Request to “improve IR System” Seems to Be Ineffective This Time

I would like to discuss the issues on the April 9 Nikkei article, “TSE to Oblige IR Departments and Personnel to Listed Companies; Penalties for...

Metrical Inc

Another Reason Companies Are Reluctant to Disclose in English, and Not Just Because of the Cost

I would like to discuss the issues on the April 9 Nikkei article, “English Language Disclosure to Enhance Communication to Investors.”

Metrical Inc

JAPAN FLOW: Foreign Investor Inflows May Increase

JAPAN FLOW: Foreign flows matter in Japanese equities. Foreigners chase performance, individuals and trust banks fade it. This works over multi...

Travis Lundy

Many Companies in Japan Are Still Hesitant to Hire the Talent They Need

I would like to discuss the issues on the February 19 Nikkei article, “Japan's Aging Board of Directors: Sanrio Re-Grows with ‘Old and Young...

Metrical Inc

Reasons Why the TSE's Request to “improve IR System” Seems to Be Ineffective This Time

I would like to discuss the issues on the April 9 Nikkei article, “TSE to Oblige IR Departments and Personnel to Listed Companies; Penalties for...

Metrical Inc

Another Reason Companies Are Reluctant to Disclose in English, and Not Just Because of the Cost

I would like to discuss the issues on the April 9 Nikkei article, “English Language Disclosure to Enhance Communication to Investors.”

Metrical Inc

Need to Shift from Obsession with Controlling AGM to Sharing the Value of Engagement

I would like to discuss the issues on the April 7 Nikkei article, “FSA to Survey Intentions of All Listed Companies to Disclose Annual Securities...

Metrical Inc