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Corporate governance in Japan has suddenly become a cause celebre, rousing the world’s third-largest stock market out of decades of lethargy and drawing in hordes of foreign investors.
Japan’s stock market has long been seen by investors as a ‘value trap’ where companies focus on market share, hoard cash and care little about shareholder returns.
While there has long been talk of change, 2023 has seen some real evidence of a shift. One such example was when the board of 75-year old elevator maker Fujitec Co Ltd ousted its chairman last month, handing a huge victory to activist investors.
The Tokyo Stock Exchange (TSE) is forcing reform, too, threatening companies with underperforming stocks to demonstrate a better use of capital or face being delisted.
What has prompted investors globally to sit up and take notice is an endorsement from legendary billionaire investor Warren Buffett. Buffett’s firm Berkshire Hathaway Inc increased its stake in Japan’s five largest trading houses and said he may invest more in the country.
“The worm has clearly turned in Japan,” said Simon Edelsten, manager of UK-based Artemis’s global select strategy fund. “For the Tokyo Stock Exchange to say that all companies that trade below book are going to have to do something about it is a massive change, a big step up.”
The Nikkei Average, whose top companies include multinationals Fast Retailing and Sony Group, has persistently been undervalued, trading at close to book value, which is the value of a firm’s assets.
