Japan has been considered somewhat of a sleeping giant with poor productivity in its large and growing capital stock and lacklustre shareholder returns. With this in mind, the Tokyo Stock Exchange reorganised its members into three market segments. Each has specific criteria for inclusion such as market cap, liquidity, and the percentage of independent directors.
I had a timely visit to Tokyo to attend the CLSA conference just as the Tokyo Stock Price Index reached its highest level since the Japanese economic bubble burst in 1989. I attended an oversubscribed shareholder engagement tour with guest speakers from the Japan Exchange Group and the Tokyo Stock Exchange.
These are some of the interesting takeaways from my trip:
- There are ongoing discussions around corporate governance and capital allocation and the reforms occurring in this arena
- More reforms can be expected, including a new M&A guideline and plans to improve gender diversity at the board level
- The government has also announced measures to encourage Japanese citizens to invest more of their Y2,000tn household assets in equities
- There are notable changes outside of corporate governance, with wage inflation increasing (albeit at a slow pace) and a resurgence in tourism
In this note, I go into further detail on each takeaway and share how our 4Factor Asia Pacific portfolios are well positioned to benefit from the ongoing reforms.
