At one point last Friday, shares in the operator of Totenko, a famous restaurant in Tokyo’s Ueno district, were trading 29 per cent higher after news broke that a giant panda living in the zoo across the road might be pregnant.
Two days earlier, shares in Japan’s biggest maker of baby goods, Pigeon, rose sharply on the announcement from Beijing that a demographically nervous China would allow couples to have up to three children.
A day before that, I tried to put some questions to the management of Globeride, a Japanese company behind some of the world’s highest-tech fishing equipment. Its stock has been propelled 87 per cent higher since last year by a pandemic-driven resurgence of the sport. All such inquiries, the company said, must come via post.
Each of these episodes fits one of the many subplots that have been attached for decades to Japanese equity investment. For example, there is always an obscure stock to buy or sell on a news story. Or, Japan offers developed market plays on China. Or, behind even the most futuristic-looking Japanese technology can lurk management of stultifying, steam-powered intransigence.
These are nice perennials, but for the real investment juices to flow through the Tokyo Stock Exchange, the market has always required a grand narrative. Invariably this is woven around the assertion that some longstanding logjam in corporate Japan is about to clear, with rapid, transformative impact. Usually, the problem from investors’ point of view resides with management and either its protected complacency or structural non-alignment with shareholders.
Since around 2013, corporate governance reform, government pension fund rebalancing, shareholder activism, cross-shareholding unwinding, womenomics and tightening stewardship requirements have all had stints as the brokers’ favourite logjam-clearing stories. In fits and starts, each has triggered big investment inflows, before yielding to a frustration that this is Japan and nothing actually moves that quickly. At the moment, brokers and investors moan, Japan suffers from a severe deficit of grand narratives.
However, one unusual feature of the Tokyo market is that, thanks to a quirk of organised criminal history, a 10-day period at the end of June provides an annual snapshot of corporate Japan. It is in this period that the vast majority of companies hold their AGMs. Originally, the aim was to protect them from corporate racketeers. In a research note last week, Mizuho Securities chirped that the percentage of listed companies holding their AGMs on the peak day of June 29 had hit an all-time low of a mere 27.3 per cent.
As has been the case for about six years, the Japanese AGM season will provide rapidly digestible evidence of three things: how empowered activists feel, how awkward the big institutions feel about backing them, and how threatened managements feel by both of those. The evidence, three weeks out, is not yet compelling.
Yes, there are many more activists camped out on Japan’s shareholder registers than ever. About 40 per cent of them are domestic, and they make increasingly strident proposals at the AGMs. Between them, CLSA’s John Seagrim calculates, activists have a record ¥5.6tn ($51bn) of declared investment across 416 listed companies, respectively 60 per cent and 25 per cent higher than this time last year.
Also, there was something of a watershed earlier this year when big non-activist money voted with activists against the management of Toshiba. It all looks buoyant, but it has done so for a while and progress is now sludgy. Despite the appearance of change, half of Japanese stocks still trade below book value and carry not just a record value of cash as a proportion of equity, but the largest such ratio in developed markets.
In this context, it was revealing last week when Kathy Matsui, who stood down as Goldman Sachs Japan’s chief strategist last year, launched an ESG themed venture capital fund focused on growth- to late-stage domestic start-ups. It is an arena, she says, where there is a realistic prospect of instilling as standard the sort of principles to which listed companies have proved so resistant.
Matsui’s best-known coinage was the term “womenomics”, which remained for many years one of Japan’s most consistent grand narratives of change — if not one with consistent, tangible results. After three decades spent trying to foment change at listed Japanese corporations, she says, her efforts will now shift to doing so before companies go public and before, as she puts it, “it’s too late”.
The investment subplots of Japan, from pregnant panda booms and factory automation to solid-state batteries and hydrogen vehicles, will remain stockpicker favourites. The grand narrative may need a rethink.