TOKYO – A group of investors led by prominent activist shareholder Yoshiaki Murakami said a push by the Tokyo bourse for better capital efficiency will strengthen their crusade to reduce Japan’s unusually high number of chronically undervalued stocks.
Japan is almost unique among major economies in the number of companies whose shares are worth less than their assets – almost half of those listed on the TOPIX500 index of big companies, compared with about 3 percent for the S&P 500 in the US
To address the matter, the Tokyo Stock Exchange made a rare call a month ago for firms to disclose plans to improve capital efficiency, especially if their shares are trading below book value, triggering a wave of share buy-backs and dividend hikes.
The move is a testament that firms can no longer brush aside stock underperformance and must end the decades-long practice of asset-hoarding, said Hironao Fukushima, representative director of City Index Eleventh, who works closely with Murakami.
“It gives us a tailwind,” Fukushima told Reuters in an interview, referring to value investors’ goal of boosting a company’s price-to-book ratio (PBR) or return on equity.
“Previously, management at listed companies didn’t have any incentives to increase PBRs,” he said.
Fukushima works alongside former bureaucrat Murakami who rose to prominence two decades ago pushing for higher shareholder returns – something unheard of domestically at the time – until he was convicted of insider trading in 2007.
He returned to the public eye about a decade later, resurfacing as an investor working with others including Fukushima and daughter Aya Murakami as an informal group.
The group, which has led a number of high-profile campaigns, holds stakes in roughly 50 companies, including about 10 where their ownership exceeds 5 percent, although the number is constantly changing, Aya Murakami said in the same interview.
“The PBR is a big factor in our selection of target companies,” she said. “We’ve been trying to engage with management so that their shares would come out of a value trap.”
Many target companies have accused the group as simply being focused on short-term profit at the expense of long-term growth.
For instance, Cosmo Energy Holdings Co Ltd.- 20 percent owned by group members – has questioned whether the group’s push since late last year for a share buy-back program was only for the sake of quick profit. Aya Murakami denied that was the case.
“We plan to hold onto our investment because we believe Cosmo shares are worth about book value,” she said.
Meanwhile, Japanese government bond yields stabilized on Monday near the one-month lows reached after the Bank of Japan kept stimulus settings in place and signaled no rush to normalize policy.
The 10-year JGB yield was flat at 0.39 percent after earlier dipping to 0.38 percent for the first time since April 4.
The yield dropped from as high as 0.48 percent on Friday after the central bank opted to leave the cap at 0.5 percent under its yield curve control (YCC) framework while also announcing a policy review that could take as long as 1-1/2 years.
Benchmark 10-year JGB futures rose 0.07 yen to 148.67, but down from the highest since March 20 at 148.87 from early in Monday’s session.
However, analysts at Mizuho Securities warn that the length of the review doesn’t mean a normalization of policy must wait for its conclusion.
“The Bank will still consider normalizing policy if stable achievement of the 2 percent price target is within sight, and we do not believe the review places any constraints on policy changes triggered by a change in the macro environment,” chief bond strategist Noriatsu Tanji and market analyst Yurie Suzuki wrote in a client note.
“By severely undercutting expectations of policy revisions during the review period, the Bank may be trying to prevent the upsurge in policy revision speculation observed ahead of each Board meeting since last year.” – Reuters
