April 2, 2019 / 11:55 PM / 3 months ago

Mrs Watanabe joins activist investors to shake up Japan Inc

TOKYO (Reuters) - Foreign activist investors who have long complained about Japanese companies’ cash-hoarding and stingy payouts to shareholders may have found an unusual ally — Japanese retail investors.

FILE PHOTO: An employees of a foreign exchange trading company works next to monitors displaying Japanese yen's exchange rate against the U.S. dollar and broadcasting a meeting between U.S. President Donald Trump and North Korean leader Kim Jong Un during their second North Korea-U.S. summit in Hanoi, in Tokyo, Japan February 28, 2019. REUTERS/Issei Kato/File Photo

Market activism has historically been low-key in Japan but a drive by Prime Minister Shinzo Abe to get investors to be more assertive in their demands for shareholder value has slowly changed this.

That push may pick up momentum in May when representatives from some activist funds, both foreign and domestic, meet hundreds of Japanese retail investors in Tokyo at an event organised by an online broker, a month before the peak of Corporate Japan’s annual general meeting (AGM) season.

Such a meeting would have been unheard of in the past, market players say, in a country where offshore activists were seen as “foreign vultures” seeking to pillage precious corporate savings.

“There have always been sceptical views that ‘hostile’ activism can’t be as successful in Japan as it is in the United States,” said Hiroki Tsujimura, chief investment officer (CIO) at Nikko Asset Management. “However, given the rapidly changing environment, we have started to see successful activists’ campaigns recently.”

The country’s retail investors hold about one sixth of domestic shares and are colloquially known as Mrs Watanabe, a reference to the archetypical Japanese housewife and her household investments.

Japan Inc has managed to weather pressure from shareholder activism thanks to still large institutional cross-share holdings. A joint front between foreign activists and domestic retail investors, however, could increase pressure on management.

Already, there are signs of change: the number of companies that had proposals from shareholders at AGMs increased to more than 50 by 2017 from below 30 in 2011, according to Daiwa Institute of Research (DIR).

Those proposals include calls for higher dividend payouts, selling non-core assets, and changing the structures of executive boards.

While such proposals are usually voted down, support for them has increased in recent years, putting pressure on company management, and in some cases, prompting companies to adopt some of the suggestions.

In a recent example, investors in housing products maker Lixil Group last month called for the ouster of top management, citing concerns about corporate governance.

Foreign funds hope the May 19 meeting, hosted by securities broker Monex Group, will help promote the needs of retail investors, who collectively own 1,830 trillion yen ($16.5 trillion) of assets, including 96 trillion yen in listed Japanese stocks.

“The best scenario is that retail shareholders increasingly vote for good shareholder proposals that add value to companies, and increase corporate values across the board,” said Seth Fischer, founder and CIO of Hong Kong-based Oasis Management, who plans to take part in the meeting.

Fischer sees the meeting as a good opportunity to discuss ideas with retail investors.

Zuhair Khan, head of Japan research at Jefferies, thinks activism can help boost the value of Japanese shares, which currently trade at just 1.1-1.2 times their book value.

He expects even modest success in corporate reforms could boost shares to 2-times their book value.

“The upside to the Japanese stock market of improved governance is huge,” Khan said.

Monex Group, the organiser of the meeting, said the response from international activist funds has so far been promising.

Oki Matsumoto, founder and chairman of Monex, said increased co-operation could be a win-win for both retail investors and institutional activists.

“I hope the meeting will have some positive impact on voting at AGMs this year,” Matsumoto said.

($1 = 111.30 yen)

Reporting by Tomo Uetake; Editing by Hideyuki Sano and Sam Holmes

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