Unlocking value in Japanese equities

Unlocking value in Japanese equities

Japan’s companies are adopting more shareholder friendly policies. We explore the opportunities for investors and explain why we’re currently overweight Japanese equities across the CT Universal MAP portfolios.

The chart shows that Japanese companies are enjoying good profitability, but, much more importantly, that these companies are rapidly increasing their use of buy-back plans as part of a shift to deliver greater returns to shareholders.

Japanese companies start to focus on shareholder value

TOPIX aggregate net income and share buyback announcements
Japanese companies start to focus on shareholder value
Source: Columbia Threadneedle Investments, BofA Global Research, QUICK and J.P Morgan Asset Management as at 27 2023. Based on TOPIX companies with fiscal year ending in March. Share buybacks aggregated from April 1st  to May 18th for each year.

There’s often been talk of Japanese companies adopting more shareholder friendly policies, but this time it is the law!

In April of this year, another policy move aimed at increasing Japanese corporate profitability was launched, the inelegantly named Action Plan for Substantiation of Corporate Governance Reform. Companies listed on the Tokyo Stock Exchange are required to disclose risk-taking plans and measures taken to achieve growth while keeping profitability in mind. More specifically, firms with a price-to-book (P/B) ratio below 1x will be flagged and requested to “properly identify” their cost and efficiency of capital.

Our global equity team have flagged that the magnitude of cash on some Japanese firms’ balance sheets provides clear opportunities to increase return on equity by around 5%. That means handing the zero-yield cash back to investors and even considering gearing up their balance sheets with borrowing at current low rates. This represents a very significant opportunity for companies to boost to shareholder returns and one that can be independently delivered by the management and which is not reliant on any external market or economic factors.

Valuations still look attractive in the region especially with the structural changes that are occurring within Japanese corporates. Increased research & development and investment should translate to productivity gains and buybacks and dividend payments have been increased, which should mean better shareholder returns. Central bank monetary policy remains incredibly loose.  We are currently overweight Japanese equities.

Keith Balmer
Portfolio Manager
Share on linkedin
Share on email

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions expressed by individual authors do not necessarily represent those of Columbia Threadneedle Investments.

Past performance should not be seen as an indication of future performance.

You might be interested in...

26 February 2024

Low inflation to create unusual dilemma for the Bank of England

In an election year, pressure for a cut in rates will only grow as inflation eases. What is the BoE to do?
Watch time - 4 min
19 February 2024

UK recession: what next?

Why an upturn looks likely and what that could mean for markets.
Watch time - 4 min
12 February 2024

How far will interest rates fall?

Discussing the extent of cuts and the implications for markets?
Watch time - 4 min

Why Columbia Threadneedle for low-cost multi-asset

Columbia Threadneedle Universal MAP redefines value through active multi-asset solutions and business support at a passive price point. Fund OCFs at 0.29%-0.39%.

Our Portfolio

The Columbia Threadneedle Universal MAP and Sustainable MAP ranges offer risk-controlled portfolio options designed to cover a host of client growth, income and sustainability needs.

Important information

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

For professional investors only.

This financial promotion is issued for marketing and information purposes only by Columbia Threadneedle Investments in the UK.

The Fund is a sub fund of Columbia Threadneedle (UK) ICVC III, an open ended investment company (OEIC), registered in the UK and authorised by the Financial Conduct Authority (FCA).

English language copies of the Fund’s Prospectus, summarised investor rights, English language copies of the key investor information document (KIID) can be obtained from Columbia Threadneedle Investments, Exchange House, Primrose Street, London EC2A 2NY, telephone: Client Services on 0044 (0)20 7011 4444, email: [email protected] or electronically at www.columbiathreadneedle.com. Please read the Prospectus before taking any investment decision.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

Financial promotions are issued for marketing and information purposes; in the United Kingdom by Columbia Threadneedle Management Limited, which is authorised and regulated by the Financial Conduct Authority; in the EEA by Columbia Threadneedle Netherlands B.V., which is regulated by the Dutch Authority for the Financial Markets (AFM); and in Switzerland by Columbia Threadneedle Management (Swiss) GmbH, acting as representative office of Columbia Threadneedle Management Limited. In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA).  For Distributors: This document is intended to provide distributors with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Thank you. You can now visit your preference centre to choose which insights you would like to receive by email.

To view and control which insights you receive from us by email, please visit your preference centre.

Play Video

CT Property Trust- Fund Manager Update

Sed ut perspiciatis unde omnis iste natus error sit voluptatem accusantium doloremque laudantium