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>The most important factor in increasing stock valuations is overseas investors, and a clue can be found in exploring what kind of companies they tend to invest in.</li>
<li>It is a company with high cash holdings and a high growth policy score, i.e., a company that generates ample cash flow. This should be considered a necessary condition.</li>
<li>As foreign ownership increases, shareholder returns such as share buybacks will also be implemented to review cash allocations and improve board practices, so these can be considered byproducts.</li>
</ul>


The most important factor in increasing stock valuations is overseas investors, and a clue can be found in exploring what kind of companies they tend to invest in.
It is a company with high cash holdings and a high growth policy score, i.e., a company that generates ample cash flow. This should be considered a necessary condition.
As foreign ownership increases, shareholder returns such as share buybacks will also be implemented to review cash allocations and improve board practices, so these can be considered byproducts.


Cash Flow Return Is Necessary Condition for Higher Stock Valuations; Shareholder Return Is Byproduct

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

TSE Tokyo Price Index TOPIX / Technical Analysis

<ul>
<li>There continues to be little traction above $93 on the MSCI ACWI (ACWI-US), which remains the top-end of our anticipated 2023 trading range.</li>
<li>At the same time, we cannot get too bearish until there is a break below $90.50 short-term support.</li>
<li>EURO STOXX 50 pulling back to 4100-4200 buy area. TOPIX holding above 2120 support. Buy ideas within Technology, Construction Materials, gold miners, Utilities, other defensives.</li>
</ul>


There continues to be little traction above $93 on the MSCI ACWI (ACWI-US), which remains the top-end of our anticipated 2023 trading range.
At the same time, we cannot get too bearish until there is a break below $90.50 short-term support.
EURO STOXX 50 pulling back to 4100-4200 buy area. TOPIX holding above 2120 support. Buy ideas within Technology, Construction Materials, gold miners, Utilities, other defensives.


Japan Remains Leadership; Actionable Pullback in Europe; Downgrading China/Hong Kong

<ul>
<li>Although listed companies are required to consider the interests of minority shareholders, parent-subsidiary listings should inherently be avoided because it's difficult to reconcile conflicting interests between parent and its subsidiary.</li>
<li>This case questioned whether the FamilyMart directors considered the interests of minority shareholders. The fact that fiduciary duty is scarce in Japan could have been a factor behind this case.</li>
<li>This lack of understanding may also be a factor preventing independent directors from fulfilling their functions, as some CEOs are seen to consider independent directors as advisors rather than managers.</li>
</ul>


Although listed companies are required to consider the interests of minority shareholders, parent-subsidiary listings should inherently be avoided because it's difficult to reconcile conflicting interests between parent and its subsidiary.
This case questioned whether the FamilyMart directors considered the interests of minority shareholders. The fact that fiduciary duty is scarce in Japan could have been a factor behind this case.
This lack of understanding may also be a factor preventing independent directors from fulfilling their functions, as some CEOs are seen to consider independent directors as advisors rather than managers.


When Will Fiduciary Duty Take Root in Japan?

<ul>
<li>The concern that companies are only striving to develop formal systems and not improving the substance of their corporate governance is shared by the Council of Experts.</li>
<li>A solution to avoid formal system development would be to increase the independence of the board to a level that cannot be cleared by a little matching of numbers.</li>
<li>For effective engagement, management must be aware of the goal of "sustainable growth and expansion of corporate value" in order to communicate in the same language.</li>
</ul>


The concern that companies are only striving to develop formal systems and not improving the substance of their corporate governance is shared by the Council of Experts.
A solution to avoid formal system development would be to increase the independence of the board to a level that cannot be cleared by a little matching of numbers.
For effective engagement, management must be aware of the goal of "sustainable growth and expansion of corporate value" in order to communicate in the same language.


The Starting Point Is to Set "Sustainable Expansion of Corporate Value" As a Management Goal

<ul>
<li>The number of workers expected to be in short supply could further expand if parameters change, such as decrease in working-age population due to further decline in the birth rate.</li>
<li>Even if the current foreign technical internship system relaxes the "no change of employer" restriction somewhat, changing the status of residence to permanent residence has not been points of discussion.</li>
<li>Government has avoided discussions that lead to the acceptance of foreign nationals based on permanent residency and as a result, the problems of population decline and worker shortages have worsened.</li>
</ul>


The number of workers expected to be in short supply could further expand if parameters change, such as decrease in working-age population due to further decline in the birth rate.
Even if the current foreign technical internship system relaxes the "no change of employer" restriction somewhat, changing the status of residence to permanent residence has not been points of discussion.
Government has avoided discussions that lead to the acceptance of foreign nationals based on permanent residency and as a result, the problems of population decline and worker shortages have worsened.


How Long Will Small Modifications Continue, Avoiding Discussion of the Essential Issues?

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)

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