Nomura Securities spies thematic opportunity

Japan’s powerful distributor is marketing a corporate value fund to capitalise on the nation’s new corporate governance drive. But it sees only a narrow window of opportunity.
Nomura Securities spies thematic opportunity

Japan’s most powerful distributor, Nomura Securities, has started to market a new fund to capitalise on the nation’s concerted drive to improve corporate governance.

The firm, which has an estimated 23% market share of Japan’s retail accounts, has confirmed it started to market a corporate value fund this month. The product, manufactured by Nomura Asset Management, is set to be launched in April.

This will focus on Japanese companies with net cash on their balance sheets that are well placed to increase their payout ratio to shareholders.

“At the moment companies in Japan have a huge amount of cash and are trying to change their attitude to shareholders,” said Masahiro Yamasaki, executive director of product planning at  Tokyo-based Nomura Securities.

“About two years ago it would have been difficult to find that kind of opportunity in the Japanese stock market. So we are trying to capture this timing within Japan, because companies are changing.”

Only this month Japan’s Financial Services Agency – which oversees banking, securities and exchange, and insurance – published final details of the nation’s new corporate governance code, set to come into effect this June.

The document set out principles for listed firms in Japan to follow, on issues such as shareholder rights and dialogue, disclosure and responsibilities of the board of directors.

While it is not legally binding, it requires companies not in compliance with the code to explain why not. It works in tandem with additional listing rules being introduced this June by the Tokyo Stock Exchange (TSE), which set standards for corporate governance that firms also need to meet or risk being de-listed.

The aim of the push, which has been driven by the administration of prime minister Shinzo Abe, is to improve companies’ medium- to long-term profitability and productivity, as measured by such factors as return on equity (ROE).

As a consequence, Japanese firms have raised shareholder returns to record levels as they pay closer attention to corporate governance.

Annual dividends by TSE firms rose 19% year-on-year to a record ¥8.7 trillion ($71.6 billion) in 2014, according to Goldman Sachs research. A total of 303 firms announced plans to buy back shares last year.

Goldman is forecasting TSE shareholder returns of ¥17.2 trillion ($142 billion) for fiscal 2015, versus ¥13.4 trillion the previous year.

Yamasaki of Nomura Securities noted that companies which had managed to raise their ROE above 8% had tended to see their price-to-book ratio increase, meaning their share prices had gone up.

Aggregated dividends as at the end of last year had risen to 7%, from 6% year on year, according to data provided by broker Monex Group.

Firms that have offered buybacks and dividends recently have included Amada, Aoyama Trading, Fujifilm Holdings and Fanuc Corporation, all of which have seen sharp surges in share price.

However, Yamasaki noted that he saw such ROE-focused activity as thematic to a certain degree, in that the changes would be priced into the market within a few years.

He suspects the opportunity could be on a one-year time horizon, after which he expects to close this Japanese corporate value fund to new investors. “We don’t think this theme has a long life,” Yamasaki told AsianInvestor.

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