Raw Japan
Slices of Japanese business, politics and life
Investing as charity
While Japan took few direct hits in the global credit crisis, the aftershocks have been immense, and long-lasting. The United States and Europe may now be showing some signs of recovery, but the world’s second-largest economy is still straggling behind and gasping for air.
Predictably, equity markets reflect Japan’s wheezy struggle. The Nikkei 225 is the worst performer among the benchmark indexes of the G7 nations, up just 10 percent so far this year. (The best performer, by the way, is Toronto at nearly 27 percent. The Dow has posted a respectable 17 percent return.)
Some discrepancy between Japan and other advanced industrialised nations is to be expected. Tokyo’s top companies are largely exporters reliant on the United States, where consumer spending has been whiplashed by the recession. A resurgent yen, which drives up the price of Japanese goods overseas, hasn’t helped either.
Consumer spending in Japan — which never convincingly recovered from the crash of the asset bubble in the early 1990s — is only poised to get worse, thanks to the lethal demographic cocktail of an ageing population and a shrinking birthrate.
But the reasons behind the Nikkei’s poor performance aren’t exclusively economic. Talk to a frustrated fund manager in Tokyo (believe me, they are very easy to find these days) and they’ll tell you that even with the lousy earnings and a grim economic outlook, the biggest problem now is a rush of capital raisings that will heavily dilute the holdings of current shareholders.
“This is the biggest factor why Japanese shares lag behind U.S. and European shares,” says Takeshi Osawa, senior fund manager at Norinchukin Zenkyoren Asset Management, referring to the recent rush by Japanese companies to issue new equity.
Japanese firms have already raised $40 billion through issuing common stock and convertible bonds this year, tapping the modest stock rebound for much-needed cash to replenish their reserves, and it doesn’t look like it’s going to end.
from MacroScope:
Vote here on Japan’s economy and its election
Britain's Association of Investment Companies has UK investors who run Japanese equity funds whether they think the general election on Sunday will have a positive impact on the country, which is slowly emerging from recession.
Their answers can be found here, but the consensus was that the Democratic Party of Japan would defeat the ruling Liberal Democrat Party and that this would result in more consumer friendly policy or economic revival through higher living standards.
Managers were more divided on how long-lived any positive impact on stock market would be.
Our unscientific mini-poll below gives you the chance to vote on the issue -- but as ever your comments are also welcome.
from Summit Notebook:
Independent in appearance
Japan is edging towards the introduction of independent directors and auditors for publicly listed companies, but so far even the idea of having someone from outside at the top of a company remains a foreign concept.
The tradition is for someone to join a Japanese company at age 22 with the ultimate goal of serving on the company board, says Takeyuki Ishida, the head of Japan Research at RiskMetrics Group, which advises institutional investors on how to vote their shares.
Such a tradition of insider appointments means that even if the government requires companies to appoint at least one independent director or an independent auditor -- as a recent government discussion report suggested -- it might be a classic case of Japanese "tatemae" (appearance) rather than "honne" (substance).
A reluctant company, faced with such a requirement, might ask their friendly bank or accounting firm to find someone for them -- and end up with an ex-staff member, Ishida told the Reuters Japan Investment Summit.
Shareholder activism got a shot in the arm in Japan when foreign fund Steel Partners won a proxy battle in May over the management and directors of Aderans, a wigmaker.
On the surface, the activism has since gone quiet again but both Ishida and Jun Frank, from rival proxy advisory firm Glass Lewis & Co, say change is happening among investors in Japan.
While many investors still return empty ballots, leaving Japanese companies to decide how to vote their shares, the just completed round of annual shareholder meetings did see more tension, they both say.
Pub wisdom about Japanese bank shareholdings
Shares of Japanese banks have taken such a kicking lately that one wonders if they’ll ever be able to walk straight again. Tokyo’s index of bank stocks has dropped 18 percent so far this year, on top of a 43 percent drubbing in 2008.
While not the spectacular decline and fall of a Bear Stearns or a Lehman Brothers, the stock slide is significant because Japan’s banks have little subprime exposure, relatively healthy balance sheets and fairly bouyant core profits.
The problem is their cross-shareholdings. Unlike Western rivals, Japanese banks take stakes in corporate clients to cement business ties, making them sensitive to swings in equity prices.
Tokyo’s top three banks have already raised nearly $21 billion in new capital to offset their stock losses, and may need more if the Nikkei’s slide continues.
It’s a woeful position for both banks and shareholders, but the truth is that Japanese banks are unable to escape a trap of their own making.
I was reminded of this the other night as my drinking companion, a Japanese banker, became increasingly doleful as the beer went down in Ginza.
Whither the yen — a withering yen?
The yen’s fall against the dollar the past few weeks has been remarkably fast, and calculated from where it is now around 97.70 yen, the dollar has jumped nearly 9 percent this month, on track for its biggest such gain since August 1995.
The yen surged last year as the worsening financial crisis forced investors to unwind risky carry trades – meaning they had to buy lots of yen – under the belief that Japan’s economy and banks were holding up through the storm.
Only last month, the yen hit an over-13-year high of 87.10 per dollar. So why has the Japanese currency fallen so fast?
Analysts tell me one reason is some traders and investors who thought it would continue to rise, perhaps as far as 80 or even 70 yen, got out of such bets.
One catalyst was data showing the sharpest economic contraction in 35 years in the last quarter.
The bleak data seems to have further soured overseas investors’ views on Japanese stocks. Foreigners have been been net sellers for 12 straight weeks to the tune of 2.97 trillion yen, around $30.4 billion.
from Global Investing:
Ignoring the drumbeat?
Reuters released its February asset allocation polls today, showing an ever so slight increase in average holdings of stocks. The signficiance, however, was not in the small increase but in the fact that there was no decrease. February has not been kind to riskier investments, with a drumbeat of poor economic news combining with new fears about banks to send global stocks to fresh six-year lows.
Dig inside the various polls -- they come from the United States, Britain, Japan and continental Europe -- and you find different moods. Three-quarters of U.S. managers polled, for example, made no change at all in their allocations over the month. Europeans, meanwhile, are so gun shy that they are holding more than twice as much cash as their long-term average. Japanese investors were a bit more optimistic than a month earlier, apparently because fears of deep trouble in China are easing.
What it all says is that investors are generally sticking to the sidelines, but are not being particulary spooked by continuing bad news. So is that the bottom? Or maybe familiarity breeds contempt?
