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>It's skeptical that managers before the bubble economy really took risks. They no longer are protected by regulations  as they were before, and must take risks on their own initiative.</li>
<li>The Stewardship Code and Corporate Governance Code were introduced in the hope that they would provide a boost to standstill managers to improve profitability to increase corporate value.</li>
<li>Exit from the market is an important factor, but it can decelerate the speed at which exits are facilitated, such as maintaining listing through transitional measures or changing TOB rules.</li>
</ul>


It's skeptical that managers before the bubble economy really took risks. They no longer are protected by regulations  as they were before, and must take risks on their own initiative.
The Stewardship Code and Corporate Governance Code were introduced in the hope that they would provide a boost to standstill managers to improve profitability to increase corporate value.
Exit from the market is an important factor, but it can decelerate the speed at which exits are facilitated, such as maintaining listing through transitional measures or changing TOB rules.


Japanese Managers Have Always Wanted to Distance Themselves from Market Pressures

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

iShares MSCI ACWI ETF / Technical Analysis

<ul>
<li>The MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), EAFE (EFA-US), and EM (EEM-US) are all reversing topside their 2-month downtrends.</li>
<li>Despite this being a bullish short-term development, we still expect $93 to cap upside on the ACWI-US, leaving about 4-5% upside from here (at time of writing)</li>
<li>As a result, we would use any further strength as an opportunity to get more defensive. Actionable Themes: REA-AU, GFL-CA, GFL-US, Consumer Staples, Health Care, and Gold Miners</li>
</ul>


The MSCI ACWI (ACWI-US), ACWI ex-US (ACWX-US), EAFE (EFA-US), and EM (EEM-US) are all reversing topside their 2-month downtrends.
Despite this being a bullish short-term development, we still expect $93 to cap upside on the ACWI-US, leaving about 4-5% upside from here (at time of writing)
As a result, we would use any further strength as an opportunity to get more defensive. Actionable Themes: REA-AU, GFL-CA, GFL-US, Consumer Staples, Health Care, and Gold Miners


Shift To Defensives as $ACWI Makes Push for $93; Remain Overweight Europe; Opptys in China/HK, Japan

<ul>
<li>Since listed companies have abundant cash reserves even if interest rates rise, they will use their cash to pay down debt but they are unlikely to use it for investments.</li>
<li>Cash is piling up on balance-sheet resulting from the inability to invest in growth and get out of the game of sharing the pie of the existing stable domestic market.</li>
<li>In order to raise profit margins significantly, a manager may find growth and invest in non-existing businesses or introduce game-changing products that disrupt the stability of the market.</li>
</ul>


Since listed companies have abundant cash reserves even if interest rates rise, they will use their cash to pay down debt but they are unlikely to use it for investments.
Cash is piling up on balance-sheet resulting from the inability to invest in growth and get out of the game of sharing the pie of the existing stable domestic market.
In order to raise profit margins significantly, a manager may find growth and invest in non-existing businesses or introduce game-changing products that disrupt the stability of the market.


Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business

<ul>
<li>Since the TSE's disclosure request includes specific keywords, companies will not be able to refuse to disclose these keywords to investors if they request it in the future.</li>
<li>If companies expect revaluation of their stock price that goes beyond temporary rise in share price, it's necessary to present growth story that goes beyond measures to strengthen shareholder returns.</li>
<li>Since companies will no longer have a reason to refuse to disclose keywords, activist investors can expect to have more positive discussions with management in the future.</li>
</ul>


Since the TSE's disclosure request includes specific keywords, companies will not be able to refuse to disclose these keywords to investors if they request it in the future.
If companies expect revaluation of their stock price that goes beyond temporary rise in share price, it's necessary to present growth story that goes beyond measures to strengthen shareholder returns.
Since companies will no longer have a reason to refuse to disclose keywords, activist investors can expect to have more positive discussions with management in the future.


Expecting Fewer Refusals to Disclose Management Issues and More Positive Discussions with Management

<ul>
<li>Fujitec's board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.</li>
<li>Bringing manager's buddy on as an "independent director" is not likely to contribute to sustainable growth in corporate value.</li>
<li>If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.</li>
</ul>


Fujitec's board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.
Bringing manager's buddy on as an "independent director" is not likely to contribute to sustainable growth in corporate value.
If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.


Let Fujitec's Case Be a Lesson to Companies and Investors in Japan

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)

Japanese Managers Have Always Wanted to Distance Themselves from Market Pressures

I would like to discuss the issues on the February 27th Nikkei article, "Market Pressure Brings Ambition to Management."

Metrical Inc

Shift To Defensives as $ACWI Makes Push for $93; Remain Overweight Europe; Opptys in China/HK, Japan

$ACWI, $ACWX, $EFA, and $EEM all reversing topside their 2-month downtrends. Despite this bullish short-term development, we still expect $93 to...

Vermilion Research

Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business

I would like to discuss the issues on the March 2 Nikkei article, "Economy without Shakeout, 60% of Listed Companies with Profit Margins of Below...

Metrical Inc

Expecting Fewer Refusals to Disclose Management Issues and More Positive Discussions with Management

I would like to discuss the issues on the February 27 Nikkei article, "Activist investors bandwagon on TSE's 'P/B over 1x' request.”

Metrical Inc

Let Fujitec's Case Be a Lesson to Companies and Investors in Japan

I would like to discuss the issues on the March 2 Nikkei article, "Companies should improve their governance, not run away from activist investors."

Metrical Inc