Opening doors: Adding shareholder value in corporate Japan

The Japanese corporate landscape has undergone significant change since Abenomics emerged almost a decade ago. This state-sponsored campaign to improve both corporate governance and capital management was followed by a decade of remarkable self-improvement and there is potentially more to come. Current prime minister, Fumio Kishida, looks to build upon this trend of corporate improvement, placing a vibrant corporate sector at the heart of his policy agenda. 

“We have reached a moment today where shareholders that know how to engage in a culturally sensitive way can add a lot of value to companies.”

Unlocking potential in corporate Japan

Despite being the world’s third-largest economy¹, the Japanese stock market remains largely overlooked by global investors. Dramatic change in company behaviour combined with a lack of global attention may create a perfect playing ground for stock pickers with a long history in the market. 

“Not only do we find the market is slow to identify and price corporate change in Japan, we are also seeing that governance improvements mean we can increase secure invitations to roll up our sleeves and help investee companies to become better versions of themselves. Our voice as shareholders has become more valuable and we work hard to use that voice to help investees, whether it be through strategic reviews or introductions to potential customers or suppliers or R&D collaborators that we might own elsewhere in our portfolio,” explains Carl Vine, co-Head of Asia Pacific Equity Investments at M&G Investments.

“We have reached a moment today where shareholders that know how to engage in a culturally sensitive way could add a lot of value to companies, with the potential to drive excess returns for their investors into the bargain,” he adds.

Reaching a level of involvement with Japanese companies that can help drive change and add value through shareholder ownership does not happen overnight. Investors need to understand Japan’s cultural and corporate landscape to be able to make the kinds of informed suggestions that may add value to Japanese companies. “Investors need to have earned their credibility as value-added shareholders,” says Vine, who has 25 years investment experience in Japan.

Earning the right to engage with Japanese companies

To add value as a shareholder, it is critically important to understand the business in question extremely well. Understanding the business does not, of course, mean knowing what the future holds. It means investing time to think about a business as a CEO might. According to Vine, building an ‘ecosystem of discovery’ around a company is important. Investors will never know a company’s inner-workings like the CEO does, but it is possible to generate a perspective that is superior to the CEO’s – about competing companies, customer perceptions, and regulatory risks, for example.

“We’re not just trying to figure out near term earnings trends,” says Vine. “We’re trying to understand the big issues facing Japanese companies. Over a long period of time, asking different questions and receiving different answers helps us to develop differentiated perspectives about the risk of ownership for the companies we track. This perspective drives distinguished dialogue with companies which works in a self-reinforcing way. Over several years of iteration, our relationships in Japan have naturally evolved into a place where we have become trusted advisors and partners with many of the companies we invest in. In a moment when there is so much low-hanging fruit, this position has tremendous opportunity for our investors.”

¹ The World Bank, “GDP (Current US$)”, (data.worldbank.org).

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.