Asia L/S Equity PM/Macro/Thematic Idea Generation

Rikki Malik

Cross Asset Strategy

<ul>
<li>Are we witnessing a short-term carry-trade unwind or trend change?</li>
<li>JPY's strength and overall market weakness continue to go hand in hand.</li>
<li>Any near-term bounce  be used to reduce exposure in certain sectors</li>
</ul>


Are we witnessing a short-term carry-trade unwind or trend change?
JPY's strength and overall market weakness continue to go hand in hand.
Any near-term bounce  be used to reduce exposure in certain sectors


Nowhere to Run to Baby, Nowhere to Hide! Part 1

Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Recognizing the cost of capital and return on capital is an important factor in determining business strategy, but not many companies disclose their cost of capital and specific management vision.</li>
<li>In order to increase the effectiveness of disclosure of the cost of capital, we should consider changing the Corporate Governance Code to require disclosure by prime market listed companies.</li>
<li>JPX Prime 150 Index, which is based on "equity spreads," has begun to be calculated, but it has't attracted much attention since its performance doesn't differ from that of TOPIX.</li>
</ul>


Recognizing the cost of capital and return on capital is an important factor in determining business strategy, but not many companies disclose their cost of capital and specific management vision.
In order to increase the effectiveness of disclosure of the cost of capital, we should consider changing the Corporate Governance Code to require disclosure by prime market listed companies.
JPX Prime 150 Index, which is based on "equity spreads," has begun to be calculated, but it has't attracted much attention since its performance doesn't differ from that of TOPIX.


Ways Should Be Explored to Make Companies More Effective in Disclosing Their Cost of Capital

<ul>
<li>Activist investors' proposals were consistently based on increasing shareholder returns. The change in the environment, in which ％ of foreign shareholders increased while cross-held shares decreased, had a major impact.</li>
<li>Regarding the selection of directors, discussion on contents of Skill Matrix should be more active, as it's suspected that top management is selecting candidates who are aligned with their wishes.</li>
<li>The voting standards of domestic institutional investors are iridescent and still dependent on public opinion for each proposal. The change in public opinion has only just begun.</li>
</ul>


Activist investors' proposals were consistently based on increasing shareholder returns. The change in the environment, in which ％ of foreign shareholders increased while cross-held shares decreased, had a major impact.
Regarding the selection of directors, discussion on contents of Skill Matrix should be more active, as it's suspected that top management is selecting candidates who are aligned with their wishes.
The voting standards of domestic institutional investors are iridescent and still dependent on public opinion for each proposal. The change in public opinion has only just begun.


Public Opinion Is Slowly Catching Up, but the Change Has Only Just Begun

<ul>
<li>The percentage of female managers is low, around 10%, so it will take time for internal executive directors to be nominated, and meanwhile companies will be dependent on outside directors.</li>
<li>Finally, TSE has clearly stated specific numerical targets, so the path to achieving the targets is clear. Now the focus will shift to the content of female board  directors.</li>
<li>Hiring talented people should be the biggest management challenge, but the appointment of foreign talent has been too slow compared to the globalization of the business.</li>
</ul>


The percentage of female managers is low, around 10%, so it will take time for internal executive directors to be nominated, and meanwhile companies will be dependent on outside directors.
Finally, TSE has clearly stated specific numerical targets, so the path to achieving the targets is clear. Now the focus will shift to the content of female board  directors.
Hiring talented people should be the biggest management challenge, but the appointment of foreign talent has been too slow compared to the globalization of the business.


Few Companies Recognize Board Diversity as a Management Issue?

<ul>
<li>If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.</li>
<li>A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.</li>
<li>Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.</li>
</ul>


If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.
A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.
Even if a company's P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.


It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Nowhere to Run to Baby, Nowhere to Hide! Part 1

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Rikki Malik

Ways Should Be Explored to Make Companies More Effective in Disclosing Their Cost of Capital

I would like to discuss the issues on the August 30 Nikkei Shimbun article, "Top 30 Companies in "ROE > Cost of Capital" Ranking: ZOZO is at the Top."

Metrical Inc

Public Opinion Is Slowly Catching Up, but the Change Has Only Just Begun

I would like to discuss the issues on the August 22 Nikkei article titled "'Healthy Opposition' Emerging in Capital Markets, Tension between...

Metrical Inc

Few Companies Recognize Board Diversity as a Management Issue?

I would like to discuss the August 27th Nikkei Newspaper article, "Issues of appointing female board members: Urgent need for human resource...

Metrical Inc

It Is Time to Identify True Value and Growth Stocks Rather than High and Low P/Bs

I would like to discuss the issues on the August 23 Nikkei article, "High P/B Stocks with Weak Upside, High Interest Rates Make Selection Time for...

Metrical Inc